PROSPER MAGAZINE: DIGITAL EDITION
WHY EVERY BUSINESS SHOULD BE PLANNING FOR SUCCESSION
Andy Hemming is the UK’s top-rated business coach and owner of Action Coach Black Country. In this month’s edition, Andy outlines why every business should have succession planning at its heart.
It is generally agreed that all businesses go through four stages – start-up, growth, maturity, and decline. Whilst being born (start-up) and growing sound exciting, getting old (maturity) and dying (decline) doesn’t sound so appealing!
As a result, far too many businesses stall at growth, which is often limiting for both the business and the owner. A better definition of these final two stages would be consolidation and decision. These are the phases which allow an owner to realise the true potential of their business and achieve a work/life balance.
Succession planning as a route to growth
At the growth stage, most people simply do more. Often working harder and longer, the business is scaled to the financial requirements of the owner. Many owners simply work harder, which is essentially a recipe for burnout.
With the loss of a major customer comes potential financial issues for either the business, the owner or both.
While working harder could lead to some improvement, it’s unreasonable to expect a business entity to double or triple in size on the same basis that it started. It’s not sustainable to work twice or even three times as hard, and why would anyone want to?
The key question to ask here is: do I have a business, or have I simply created a job for myself? The true definition of a business is a commercial, profitable enterprise that works without the owner. With this in mind, succession becomes inevitable.
Why it’s never too early to start planning for succession
To truly scale a business, all owners should be looking towards succession. Whoever started the business will at some point have to exit unless they plan to live forever!
The starting point is to understand the end goal or vision, what in an ideal world would be the best result for you as the owner, your family, and the business. Often, owners can be limited by their beliefs.
For example, the owner of one business we work with believed that it wouldn’t be able to operate without them being involved. The initial goal was to grow the business to a certain size and sell.
Digging deeper, we discovered the true aim was to provide financial security for the family. Working closely with the owner we not only increased turnover and profits by more than 400% but set the business up in such a way to allow his son to take it over and fulfil the role of managing director in just two days a week.
Both the father and son can now benefit from longer-term financial security, with neither having to take on the up to 65 hours a week it previously took to run the business.
How to start removing yourself from the business
Having the confidence to step aside and loosen the reigns is often one of the biggest obstacles to succession planning and scaling a business. This is where consolidation comes into play: developing the systems that enable the business to run without you.
There are five stages we go through with businesses owners to give them the confidence and ability to create a scalable entity that can work without them.
Establish a solid foundation
Starting with the endpoint in mind, set out the vision and values for the business, which will determine the goals and culture of the organisation. Then look at how everyone within the organisation can be of most value in achieving those goals by making the best use of their time.
This is followed by identifying the leading indicators in the business to facilitate improved decision-making and putting processes in place to ensure a consistent customer experience.
Create a predictable cashflow
It may seem like common sense, but it is surprisingly rare for businesses to give as much focus on sales and marketing as to the operational elements of the business. By focusing on marketing and sales systems, you create a consistent inflow of work into the business.
As each area builds, systems and processes are implemented. The systems run the business and the people are trained to run the systems. This creates the opportunity to delegate effectively and scale the business.
This allows the aligned team to be put in place, those that understand the vision, goals and culture. The processes allow training them in the systems and hold them accountable to their individual performance.
It is at this point that an owner can confidently identify a successor or appoint a general manager because the systems are in place to run the business and the measures are there to show that they work.
Succession planning is not about the age of the business or the owner. The measures outlined above can be put in place at any stage. Realising early on that to effectively scale a business it must run without you as the owner is the key to ensuring long-term growth and sustainability. The question owners need to ask is, do I have a commercial, profitable enterprise that works without me?