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September 8, 2021
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Succession Success

In business, handing over your role is a key imperative to growth and wealth creation.

It means the transfer of responsibility of parts or all the business from yourself to another person or team.

Listen to Pavlo Phitidis outline which kinds of businesses are particularly affected by succession issues, and how to get it right, in this podcast from The Money Show:

Success in succession is needed in many cases. Some include:

  • Growth – you need to build the business in such a way that you are not the bottleneck to growth.
  • Talent – to retain talented employees, they need to grow and learn, and they want and need responsibility to enable that.
  • Exit – create an option to exit and monetise your years of risk and investment by selling to your leadership team.

Succession is common in family businesses and the professional services businesses.

In family, its all about the founders handing over to the successors. Globally, families only get this right 27% of the time. It’s often fraught by poor planning and communication.
In private business it’s a little easier if the company is well established and succession is an industry norm, for example partners in architectural firms, accounting practices or legal firms.

The considerations to get right include:

  1. Understanding the end game – handover then exit and get paid over a period
  2. Planning – it works on a 3 x 3 period: 3 years to hand over, 3 years to get paid
  3. Successor – identifying who will succeed you is vital since it requires a deep investment of time, insight, relationship, and trust
  4. Transfer – develop an annual working plan structure to establish the future habits and expectations of working together over the next 6 years. It should include an annual alignment set up, a business growth workplan and a defined handover process
  5. Data  – collect data and use it actively to manage all your engagements with your successors
  6. Valuation – educate yourself and your successor on valuation and how it works. Include how the money would flow during the period of handover and after the period of handover.

Most failures in succession are because the planning and process has been left until it’s too late. The cost of failure is significant since it prevents the founder from monetising their years of investment and risk through a capital exit.

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