Making your business work for you: passing the business to the next generation

How do you get your business ready to hand on to the next generation? We’ve outlined five key steps for adding value to the business and getting a clear exit strategy in place.

As the business owner, you've structured your company to fulfill your personal objectives. However, you also aim for the business to benefit those you pass it on to, whether they are your children, your management team, or a new buyer.

Let’s take a look at how you pass the business on to the next generation, and the key steps to plan for, consider and get in place before you exit the company.

Getting the business ready to hand over

When you transfer the business to your successor, you'll aim to ensure the company is in optimal condition. No successor will want to inherit a struggling business with operational problems and limited prospects in the current market.

Here are five steps to action before your planned exit date:

1. Start adding value to the business:

A significant aspect of preparation involves optimising the business to ensure it is a viable and profitable entity to pass on. Enhancing the business's value is crucial to developing a company you're proud to transfer to the next generation, but this requires time and extensive planning.

Invest in new systems, machinery, and property to make the business efficient, productive, and competitive. Similarly, focus on your human resources by hiring top talent and ensuring you have a team ready to assume leadership.

2. Develop a succession plan:

Choose your successor(s) well in advance, whether it’s a family member, someone from your top team or a new, external hire. And put together a detailed succession plan.

Guide your successor by offering training and development to familiarize them with your strategy, internal processes, and the brand as a whole. Establish a timeline to transition your leadership and operational duties smoothly..

3. Formalise your valuation and deal structure:

Obtaining an independent business valuation early is advisable, as it assists in establishing a fair price for the company and initiates the process for selling the business.

Work with a broker or a mergers & acquisitions adviser to define the deal structure, whether it's a gradual sale, staged payments, or gifting the company to your successor. Being clear about the deal helps keep all parties happy and limits any issues further down the line.

4. Address any legal and tax implications:

You’ll need to engage both legal and financial advisers to help you navigate the more complex areas of the deal, sale and handover.

Areas to consider will include reviewing wills, trusts, shareholder agreements, capital gains tax and inheritance tax. Proper planning at this stage helps both parties – you as the outgoing owner and the incoming generation – avoiding any potential disputes.

5. Prepare for business readiness and continuity:

The business you hand on must be attractive to a buyer, or a viable business proposition for your incoming successor and their management team.

To keep the business trading smoothly, make sure you’ve documented all your key processes, listed your customers, and have maintained the company’s financial health. Clear up any legal issues or outstanding debts and be ready to hand over a business that has a profitable and competitive future in your chosen industry sector.

Talk to us about your exit strategy and succession plan

Preparing to leave the business requires extensive planning. Ideally, having a five-year exit strategy is recommended, allowing you ample time to plan, prepare, enhance value, and select a suitable successor.

Come and talk to the team about your exit strategy and succession plan.

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