Setting up your own business is likely to have cost you as a business owner significant financial pain and risk.
You may well have had to sacrifice a secure and high salary in paid employment before you took the plunge. Any bank loans will have been subject to personal guarantees and perhaps secured on your home.
That financial pain ignores too the long hours and the responsibility of the business. Making enough cash to meet the monthly payroll may have meant sleepless nights.
So now you have an established business generating more predictable cash flows. You may have been able to take life easier (more holidays, later starts and no weekend working!) but you are conscious that you cannot continue indefinitely as the owner-manager of your business.
Small private companies can seldom be successfully passed to your family under your Will. They need hands-on managers to respond to and cope with the day to day challenges of business.
A business owner, I will call him Peter, came to us recently in an unhappy frame of mind. Peter was upset with a who he had taken on with the expectation that she might buy the business from him.
Peter had helpfully (so he thought) directed his key employee to the website of his bankers. It provided guidance on how to write a business plan. Having written her plan, Peter expected his loyal colleague would be able to secure a commercial loan and offer him a reasonable price for his business.
Things had gone very quiet, he told me, for more than six months. I am going to fix a time to meet her, he told me, to ask what is happening. “I need an answer!” said Peter. I observed (I am not sure that my sense of humour was appreciated) “I think you have been given a very clear answer already”.
Peter was keen to pass on the reins but it did not occur to him to consider the potential pain of his employee.
- First there will have been the anxiety and the fear: stepping out of her comfort zone to try and write a business plan that would pass muster with the bank.
- Secondly contemplating the risk of a personal guarantee and a second charge on her home. She was a very capable manager but this will all have been very different.
A well thought through succession plan to pass the reins to your team must anticipate all of this. There are ways you can become the financier of your own planned exit. You need to explore these: they may be your best, perhaps your only, route to an exit.
In a world that is driven by transactions and commercial loans these techniques are little known and seldom talked about.
An unplanned exit heightens the pain for you as owner, your family and your team.
So if you want to lessen your pain (current or future) you need guidance from skilled professional advisers. Advisers who can help you work out a succession plan to pass the reins not the pain.
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