Most business owners who have established or built a successful business are justifiably proud of what they have achieved. However, it is surprising how few of them plan ahead for  their successful exit from  the business.

I have an edict that the quantum of time spent on defining the strategy about succession determines whether you will be a dealmaker or a dealtaker.

If you invest the time and effort in the planning and execution of the strategy, then you are likely to dictate the type of deal you achieve. As that time and effort truncates, the more you are forced to take whatever is on offer (if anything). Then you are truly a dealtaker.

Business owners are keen to realise the value that they have created, but too few realise that value comes in different forms.

Economic value is the one we are most familiar with. In simple terms, this will be the amount of money we can realise as a consequence of succeeding the business. This will be made up of the profits that are earned on the journey, the sale price achieved for the business, and any further incentives that may be forthcoming during any “earn-out period”. This value is tangible, easy to measure, and directly comparable from deal to deal.

Emotional value is less well known, but its significance should not be underestimated, particularly in professional firms or practices.

In working with professionals to plan their succession, it very quickly emerges that some of the key value attributes they are seeking are not economic, but emotional rewards: a desire to ensure that the legacy that they have created can continue.

Issues such as the manner and timing in which they depart – and the future world that their clients, staff, contacts and professional colleagues will experience – become very important. How these issues are addressed will be a critical success factor in the solution developed.

In most instances, professional practices have been developed within the principal’s community, whether that be a locality, a series of networks or centres of influence, sporting or recreational clubs, or even family and friends. On succeeding from the business, the principal will remain within this community and accordingly will be confronted each and every day with the consequences of his or her succession choice on that community. It is a very strong motivation to get it right.

The most significant challenge that business owners face in establishing a clear succession strategy is getting started. There are a number of critical elements that need to be considered and managed, such as the structure of the strategy; valuation method; successor development; funding; role transition; tax and other regulatory issues; documentation; and relationship transition, to name a few.

The key to making this all come together rests solely on the attitude of the principal.

If they embrace the need to plan, define their objectives, and hold themselves accountable to the outcomes, they will succeed. If they leave it to chance they will fail (and become a dealtaker). It really is that clinical.

Almost all of the successful succession strategies we have worked through with principals have commenced with an informal conversation focused on what is important to the principal
– the ubiquitous hour-long “coffee chat”. It is essential that we are clear about the emotional drivers at a personal level. The business drivers need to accommodate these factors, otherwise the principal will not stay committed; and if they cannot picture the outcome and believe it is achievable, then they will not see it through.

It is a complex area and has challenges, but we have seen enough success stories to be confident that a structured, defined approach will deliver the outcomes desired. Dealmaker or dealtaker? It is in your hands.

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