SMEs are widely recognised to be the backbone of the UK economy and essential for propping up employment. Ensuring the longevity of these businesses is fundamental to economic stability and growth. It’s therefore worrying that so few SME business owners have a clear succession plan.
A study by The Economist Intelligence Unit shows that 64% of business owners aged sixty do not have a plan for appointing a successor to their role when they retire. Which implies that they’ve not really given proper thought to how the business will continue to run and prosper without them.
Why are SMEs not planning for succession?
There is no simple answer but a few key themes emerge when you talk to owners. Many are too busy running the business to think about letting go. Facing the fact that you will one day have to give up your life’s work is also emotionally challenging for many owners. For others, there is no evident successor in the business so they simply ignore the issue.
Compounding these challenges are more complex issues such as poor pension provision, which fuels the need for owners to retire later. Then there is the raft of complex internal barriers to selecting a successor, particularly in the case of family controlled companies.
What good succession planning looks like
It is no co-incidence that the businesses with robust succession plans are those that have solid business plans. These plans identify individuals in the business who have the right qualities, motivation and skills to lead the business in the future. There are clear leadership development and career plans in place to support these individuals. Often more than one person is identified as a possibility – and over time they are nurtured into the role.
For other businesses, an outside appointment is the right choice. Again, who and what the business needs is clearly identified and a plan is in place to secure this person well ahead of time so that continuity is ensured.
Embracing succession- don’t delay
There are many different routes succession can take and the motivation of the founder will drive the ultimate outcome. Following some basic steps now can help owners to formulate their plan.
5 steps you can take now to manage succession
Develop a written plan before circumstances rush you into succession. This means having a clear vision of what you want things to look like by the time you hand over the reigns
Involve key staff or family members in the succession plan to garner support and consensus
Identify potential successors early and make sure you’re picking people who’ll be best for the business not those you like the best
Identify skills shortages that may hold back your business and hinder succession planning
Work with your advisers to maximise the enterprise value of your business so that you realise your financial expectations when you retire
Owners are uniquely bound to the businesses they create – emotionally and financially. Carefully planned and managed succession is the best way to ensure the owners retirement doesn’t mean the death of the business but rather signals the next chapter in its life.
For more insight into the life of UK SME business owners, read the latest research, For Love or Money: The Secret Life of the Business Owner. www.hwca.com/for-love-or-money
For more information on how Haines Watts support business owners visit www.hwca.com/accountants-esher
Haines Watts has offices in Esher and Godalming.