When you think about succession planning and creating a ‘back-up’ for your business, you first need to ask: is it relevant for me?
Some businesses are reliant on the owner almost exclusively and the owner decides that’s how they want it. They are taking the risk, so they prefer to drive, manage and control the business themselves.
There is nothing wrong with that; business succession is not something that needs to be forced on everyone.
However, there are consequences.
As the owner, you must accept that by making that decision you are potentially limiting the value of the business upon exit, because it is highly dependent on you as an individual, today and in the future.
Consequences to consider
Choosing to drive, manage and control your business yourself is a valid strategy, but there are consequences you need to think about in that situation:
- Need to extract value now – You need to ensure the business generates significant value day to day, year to year, because it is highly dependent on you and therefore is not necessarily a business that can be easily transferred to another party.
As a result of its dependence on you, it probably won’t have large sustainable earnings and therefore will be seen as having limited value by potential purchasers, as you will have all the knowledge and relationships relating to customers, suppliers, processes and systems. - High return on investment required – If you’re not getting your value along the way in terms of return on investment over and above reasonable market wages for your involvement in the role, then the business is not generating what it should.
If you are taking most, if not all, of the risk, then you need to think of what reward for risk the business is generating. - Accept the personal stresses – If you choose not to have a back-up system for your business it can create certain personal stresses and strains if you become ill or need to leave the business for a certain time.
The workload may also impact your health, as all the pressure is on your shoulders. - Increased perceived risk – People around you, such as financiers and customers, will rate the business differently if it’s solely dependent on you because they know that one person can only have influence on so many things.
- Staff may lack motivation – The people working for you will need to be somewhat subservient or have more moderate motivation to grow their individual skills and capabilities in your business.
- Poor staff retention – You may find retention of staff is difficult as they can become frustrated by a lack of opportunities for individual growth.
You’ll then have to spend time going to the market to supplement your team, and your business will be impacted by having to train new staff on your systems and processes.
If you think your business would benefit from a succession plan, the JPAbusiness team can help. Call us on 02 6360 0360 for a confidential, initial discussion about your business succession needs.
