You might consider the subject of Succession Planning to be of passing relevance right now. It may appear that there’s no pressing need to consider your End Game whilst we’re in the middle of the biggest boom in Engineering and Construction in living memory.
It’s not that I want to unduly worry you while you’re busy, but history shows that what goes up must eventually come down and the Construction industry is unlikely to perform any differently this time round….
SO putting all the hard work into creating your valuable business is one thing, but how do you make sure that you monetise this value when the right opportunity presents itself?
The simple answer to this question, is that the value of your business as an ongoing concern exists only in the eye of your beholder until crystallised via a transaction. In other words, the key to your successful “exit” out of the business is the successful “entry” of others – be they external buyers, investors or key staff - into your business.
The key to success here is to understand the interests of ALL parties involved in the transaction and to frame up the deal in a way that aligns the parties’ interests.
So what are these interests? These typically comprise one - or a combination of - three elements:
- Income – self explanatory
- Equity – typically in the form of shares
- Control - considered from both a business operational (day to day decision making) as well as a (voting rights) perspective.
When designing a transaction, we need to recognise and explicitly consider the different interests the parties have in relation to the business. For instance, a business investor with an interest in your enterprise will want a return on their investment within an acceptable timeframe, some sort of comfort (if not a guarantee) that the business will perform as promised and an exit option if this is not achieved.
So what’s typically the biggest challenge in achieving a successful Succession event? Unfortunately, based on my experience – and with all due respect - it’s YOU!
Business founders and Owners more often than not struggle to let go of control of their business when the right opportunity comes along, even when a smaller piece of a much bigger pie might be on offer.
The antidote to this is to start thinking about Succession sooner rather than later – it’s rarely too early in your journey to have an End Game in mind….
