Why it matters?

Succession of a business is fraught with emotional and practical challenges, whether in family businesses or across the professional services sector. Success is rare, with 73% of succession attempts failing at a significant cost to the founders, successors, employees, customers, and suppliers.

For family businesses, failure costs both generations the family’s wealth-generating and emotional wellbeing. In private companies, it erodes or stalls the retirement wellbeing of the exiting generation and robs the next generation of their future wealth creation path. All lose.

What goes wrong?

• Mindsets – The exiting generation has an eye on retirement and their final wealth generation through a sale of shares. Successors look to carve a wealth creation path in the years ahead through reinvestment. The conflict, conscious or not, seeds the frustration experienced by both the timing and method of succession. The different mindsets prevent effective planning or erode trust and the relationship increasing the complexity, judgment, and probability of succession success.
• Relationships – poor timing, planning, and method in succession create confusion and noise in the business ecosystem. Customer and supplier uncertainty creates doubt and fear, often stalling or changing tac on the succession process and its timing, costing the parties and the company.
• Value – Neither party has likely valued a company before, and conflicting agendas further impede successful succession. The exiting generation needs to maximize their value as their last wealth-generating act before retirement. The succeeding generation needs certainty that they can afford the acquisition.
• Timing – the fear of exiting a business by the founding generation is often realized late in the process. Questions on their value and psychology begin to arise, and fear often shows as a reticence to proceed, which the succeeding generation may misconstrue. Once resolved, the timing issues center on the transfer and payment of the shares. The succeeding generation typically requires payment terms, having had no prior opportunity to accumulate capital to acquire the shares. This creates uncertainty and apprehension in the exiting generation who relinquish control, without full payment, that could see their successors erode the value of their yet-to-be-paid-out retirement.
• Transparency and plan – decisions on successors, the process adopted for the transfer of responsibilities, and the final value and terms of succession can harm the relationships across the company. Good, loyal, capable employees are overlooked because of poorly motivated decisions or poorly planned communications, causing animosity and anxiety through the succession attempt.

Solution

If you’re exiting, your successors will pay you out over time, and you need to be confident that they can operate, run and grow the business without your input. Should they raise capital to acquire their shares, they’d need to meet the requirements of a funding source.

We work with you to develop a structured succession plan that is practical and measurable to

• Transfer operational and commercial responsibility, over time to successors

Working with you and your leadership team or family members to:

• Align leadership – run diagnostics to ground-truth and align the understanding of the companies foundation, future growth strategy, team dynamics, and current numbers
• Set the future goals together – 10, crisply defined, measurable growth goals, and load them onto your company dashboard. Monthly we will evaluate progress towards the goals to ensure their achievement and the structured transfer of responsibilities between the generations
• Create a schedule of activities over time to transfer the responsibility of the business functions in a structured, methodical manner that draws on the experience, insight, and learnings of the exiting generations alongside the activation and implementation of the activities, incorporating the wisdom to build out the future business
• Transfer leadership and relations across customers, suppliers, and employees between generations to manage relationship expectations and maintain stability
• Set up and establish a monthly, performance-based engagement between the generations to the sign-off transfer of blocks of responsibility and set the post-handover relationship between the generations with the exiting generation assuming a shareholding-investor-advisor role and succeeding generation taking an owner-operator-leader role
• Collecting data across all the systems to support decision-making to moderate decisions, align the parties, ensure objective engagements
• Build a valuation framework that aligns both generations on the fair value of the business for eventual acquisition and sale of shares to reward the exiting generation and motivate the succeeding generation

The Outcome

An inclusive, structured, time-based engagement to reliably handover in a risk-managed process, the responsibilities of the business operations and strategy, align the expectations between the exiting and succeeding generation on the company’s future direction plus establishes the framework for the transfer of responsibilities while ensuring facilitated communications, the use of data to moderate and guide decisions and the development of respect between the generations. Allows for the alignment on valuation, terms of payment, conditions of handover to preserve the wealth payout for the exiting and wealth creation path for the succeeding.

How we make it happen

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Why it matters?

Wealth generation for a company owner requires three acts of leadership, each with its focus and direction.

Make money – build a business that generates organic growth to release your time to focus on next-level growth

Grow money – identify and implement next-level growth initiatives that accelerate revenue growth and deepen profitability

Protect money – lock in the 5 levers of value to secure a successful, premium exit that monetizes years of dedication, care, risk, and investment.

While we spend 10-15-20-30-40 years building a business to generate income that we reinvest to win greater returns and a premium sale and exit, 94.6% of companies started fail to sell. They close at a high cost to the business owner, their family, and employees. Of the 5.4% that do sell, 68% make significant concessions on value and the terms of sale, eroding the value of legacy.

What goes wrong?

Job not an asset

Every business develops through stages. In the early days, income generation is vital. It relies on activities that trap you in an income generation mindset and habit, preventing your company from generating income without you. In effect, this makes your company a job, and a job is not salable. To be sold, you must build your company into a tradable asset meeting 3 criteria; income growth, capital growth, and independence of the business owner.

Not built for sale

Planning – Businesses are not bought; they need to be built to be sold. There are only 2 destinations for any business: a sale or closure. Not planning your eventual exit prevents you from understanding how an acquirer buys a company and what you need to do to build one that meets those requirements. By not developing the 5 levers of valuation and exit in your business today for that future event reduces your salability and puts you on the back foot of a price taker should a buyer make an offer.

Time runs out

Being caught up in daily, weekly, monthly operational activities traps you in an operator mindset. This prevents your progression to an investor mindset allowing you to build for a sale instead of building for simply income generation.

Time  – too much time caught up in your business’s daily, weekly, monthly activities prevents your ability to switch hats from operator to investor. It also impedes your ability to understand the investor/acquirer mindset and then act to build a product they’d want to acquire. Time scarcity often appears in comments like “I will deal with it when I’m ready to sell.”; “I’m too busy to focus on this right now. We’re putting out fires, which takes all my time.”; “I don’t need to plan. I get letters all the time from potential buyers so that selling will be easy.” and”I’m not ready, so planning isn’t necessary.”  

Only 2 destinations

Valuation – the circumstances leading up to a sale event are less strategic and more circumstantial, including moribund or low growth, a significant work effort or investment requirement to maintain and sustain the business, burnout, health, boredom, and relationship pressures, amongst others. This motivates a valuation approach driven by a business owners emotion and necessity, not math. And valuation is very much about math. Five levers or variables influence the valuation of a business and the terms of exit. Waiting for the event that drives a poorly planned exit to occur prevents your business from being ever-ready for a premium exit.

The Solution

By building an Asset of Value today, you can have your cake and eat it tomorrow. An AOV meets the criteria of a tradable asset, locks in the 5 levers of value, and places you in a position to sell in the future

We will work with you

• Diagnose your Asset of Value status and see what gaps need to be closed to achieve the exit state that would best achieve a premium price and clean exit
• To set the growth and exit goals that would see your business deliver the 5 levers of valuation and exit

Working with you and your team, we will:

• Position your business for growth to inspire future acquirers
• Develop a simple, transferable growth system to make it happen without you
• Upskill and empower your team to drive the growth system
• Secure organic and next-level growth outcomes to build confidence on how an acquirer can achieve a return on their investment
• Meet all the Asset of Value criteria to increase your ability to sell successfully
• Build the body of evidence to demonstrate the 5 levers of value and exit to maximize your valuation and simplify your terms of exit and payment

The Outcome

A business built into an asset of value allows you to have your cake and eat it. Should you wish to exit, and opportunity to do so a premium valuation on acceptable terms and conditions. Should you delay your exit, your business will be positioned for growth, enabled by a simple, smart growth system operated by a purposeful team. The results will see organic growth and next-level growth initiatives grow revenue while deepening profits. Ultimately, the years of risk, investment, and sacrifices can now be monetized or sweated further to maximize exit valuations or wait for optimal exit timing.

How we make it happen

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