by Tony Vidler
Unless you plan to work to the grave all practice owners need to be thinking “succession planning” at some point – preferably as early as possible. Maybe right even from the beginning of your practice.
Succession planning is simply about working out how to exit the business at your preferred time, in your preferred way, and hopefully at your preferred price. That is definitely worth thinking about right from when you first start your own business.
Achieving the ideal succession planning strategy successfully though is quite a journey, and will involve significant thought and planning together with sustained execution of the plan. There are 6 distinct phases to an ideal business succession plan, and they are:
1. Establish the Owners Objectives
2. Understanding Where The Value Is
3. Building & Maintaining Practice Value
4. Creating the Sale
5. Completing the Sale
6. Personal Planning & Legacy Issues
At the very beginning of any succession planning you have to answer the essential questions of “what, when, who and how” as they establish the framework of what is trying to be achieved.
One of the key questions at the outset was understanding what it is you are selling – a business, an interest in a business, just an asset sale? It follows that once you have worked out what it is you are selling you need to understand what components add or create value within that. Considerations will include:
Having established a clear picture of what it is you are hoping to achieve, and how others would consider where value might lie within the business, it becomes somewhat easier to then focus upon the areas that can add the most to practice value, and therefore enhance the return from your succession planning.
These might include:
For pure “asset sales”:
For entire “entity sales”:
The first three steps of succession planning are arguably the most difficult, in that they are focussed on understanding the objectives, the levers that drive value, and then building a strategy (or plan) around how to achieve the optimal value.
That is only half of the battle…
Because to active the ultimate objective of the succession plan an exit has to actually happen.
This step of the process is often focussed on the “consideration” aspects alone, and while the structure of the settlement of the sale is very important, the elements outlined above are just as important. The consideration, or how people will actually pay you for your business, will typically come down to one of the following (ranked from most favourable to least desirable in my view):
When it is time to begin the actual sale process you will need to be prepared with:
At this point it is finally all about you! Of course you will have prepared for this if you have been diligently creating the perfect succession plan, although it is surprising how many professionals get to this point and only then begin thinking about how to structure their own affairs.
Minimum considerations should include:
As you can see, putting together the optimal exit from your business can take as much thought and preparation as the building of the business itself. Of course a business owner doesn’t have to go to all this trouble – and most don’t. Most go for a simple rule of thumb valuation that is typically accepted within their particular sector of the profession and go for little more than an asset sale.
The difference between doing that and working to a full succession plan where you sell a well structured business that is attractive to new investors can be, and usually is, many extra zero’s. In your pocket.
The hard work is usually worth it though.
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