Leaving your business in good hands is just as much a mark of professionalism as growing it.
There are different ways of exiting your business, which require different preparation.
There is, however, one element of that preparation that every succession plan has in common: your aim needs to be to make yourself the least important person in the business. In order to achieve this, you need to spend time working on the transition before you get to the transaction.
Since selling Ovation to an employee ownership trust in 2017, I have dealt with many hundreds of businesses and their owners. What follows is a composite case study of what can go right, plus mistakes I have seen made, drawn from those conversations.
Case Study: Meet Paul Ramon
Paul founded Ramon Financial Services back in the 90s. When we first spoke in 2018, he had nine employees, including two advisers. All clients were signed up by Paul, but some dealt day-to-day with the other advisers.
Paul had made one pivotal decision. He started planning five years before his desired sale date.
Unlike most owners who quote five years as their timescale, Paul took action.
Question: How much do you need?
The first question I asked Paul was how much he needed to sell his business for. Paul told me the business was worth £1mn.
I explained that a valuation was not the question. I wanted to know how much he needed. Paul engaged a financial planner who was able to show him how much he needed, and over what period.
As the figure was marginally more than the highest possible valuation of his business, a five-year business plan was constructed. This included Paul thinking about what he would do after the sale, resulting in a trustee role for a local charity.
Putting clients first
Paul’s major concern about the transition was that the clients would be unhappy not dealing with him. The other advisers began to join Paul in client meetings, and soon became their main point of contact. Another adviser was hired, with no expectation of winning their own clients.
Over the next few years, every single client, aside from a few personal friends that Paul wanted to retain, were moved across to other advisers. There was not one client lost nor a single complaint.
Building the brand
One of the reasons this was achieved smoothly was because we simultaneously built the brand to be about the whole business, not just Paul. Newsletter content went from investment forecasts to client and employee stories.
Client events were begun, where clients were invited to hear a (non-financial) speaker, and to meet the employees. Some of the employees were initially bashful, but found they hugely enjoyed putting clients’ faces to names.
Paul knew that this plan was working when a client commented how nice it was to feel part of the Ramon FS ‘family’.
Employee engagement
In our first meeting, Paul had told me how the employees were already empowered; he could disappear for weeks at a time, and no one would even notice.
With Paul’s agreement, I asked the employees’ view on this. They gave a very different story. Paul often asked for their opinion, but he would always make the final decision. Indeed, they often felt that the decision had been made before they were consulted.
They had no problem with this – they all had huge love and respect for Paul. But they were worried how the business would cope if he were to leave. Slowly, we brought in new measures and procedures.
We invited employees to contribute to genuine business decisions. A marketing group was formed. Employees were given information about the business, in areas such as financial and marketing.
Allowing mistakes
The big test came when the employees were about to make a foolish decision. Could Paul let this happen, in order that the team would learn?
Unfortunately, Paul failed this test, and stepped in. The team did not recognise that their decision would be harmful, and resented not being allowed to have a voice.
This gave Paul his biggest lesson of all – that the challenge what is much about him being able to let go as it was the employees be able to step up.
Governance
In 2017 the leadership team was Paul, the office manager and an adviser. A board was formed, including a non-executive finance director to bring outside challenge the company.
This governance structure brought real focus to decision-making.
Leadership meetings addressed issues of the day, allowing the board to start the business plan. Standing agendas for each meeting, backed up by reporting and information, meant people began to understand their roles with greater clarity, allowing them to take specific training.
One adviser shadowed the FD for two years before taking their place on the board.
Engagement plan
Paul had identified the key people who were going to take this business forward after he left. They were not just the biggest fee earners – he populated the leadership team and board with a range of skills and personality types.
As the date of the sale approached, he worked on an engagement plan. This enabled him to choose between a management buyout, or the EOT. As the team either did not have the financial capability of making the purchase, or did not want to take the risk of using their homes to secure the finance, Paul decided that the sale to an EOT was the right end to his entrepreneurial story.
One man’s ceiling is another man’s floor
Some five years after he started the process, Paul signed the paperwork to sell his business. He handed over as MD, and stepped into the role of board chair.
He had conflicting emotions. He was deeply proud of what he had built, and delighted that the company would continue beyond him. He also, however, felt more than a little sadness as he realised that the business no longer needed him.
Throwing himself into the trustee role, Paul found that it was easier to let go than he thought it would be, thanks to transition period.
Chris Budd was managing director of Ovation for 20 years, founder of the Initiative for Financial Wellbeing, and founder of the Eternal Business Consultancy.
