Like getting a pre-nup before a wedding, thinking about succession while still in business can often seem like prematurely looking for the door.
However, as in the case of a relationship, there is no harm in effectively planning for what might happen when the time comes to part ways.
Business succession requires some serious thought and it is worth considering how it impacts commercial finance.
What is the connection between business succession and commercial finance?
If your business is young or you have no plans to exit anytime soon, you may think it is far too early to be thinking about business succession.
Truly effective business succession takes years to plan and it is wise to keep a plan in mind as you operate your business.
Commercial finance is a vital part of these decisions, as you will want to maximise and preserve the value of your company at the point of your exit.
Not only will this reward you for your hard work, it will also ensure that the new owners are left in a position where they can keep the business running.
To better understand how commercial finance can support these decisions, it is best to consider which type of business succession is most fitting for your company.
What business succession strategies are there?
Business succession centres on who you feel would be best positioned to run the company in your place after you have left it.
For some, this means selecting a relative to assume the role and keep the business in the family.
However, your employees may feel unsettled if this relative appears out of nowhere and takes the helm, so it is best to introduce them slowly over time.
This can allow your successor to get to know the business and the intricacies of the commercial finance that have led to its success.
If you are hoping to sell the business but want to keep the current culture, it may be worth considering a Management Buyout (MBO) or an Employee Ownership Trust (EOT).
An MBO involves the management team buying the company, while an EOT gives a wider range of employees a chance of partial ownership.
If these options are on the table, it may be worth educating the relevant parties on how the business is run, as running a business is very different to being a manager or employee.
The other option is to sell to an external buyer.
While this option is the one where effective commercial finance management is most apparent, it is important for all succession strategies.
How can commercial finance help with business succession?
Consider how your business looks from the perspective of a potential buyer or successor.
If the business's finances are not what you would want to inherit or acquire, why would anyone else be more optimistic?
As such, it is best to manage your commercial finance to enable a smoother succession.
This means clearing as many outstanding liabilities as you can as often as possible to ensure that these problems do not take root and grow over time.
Similarly, effective budgeting and cash flow management can show you the best times to sell or exit a business, as you will know when it is strong enough for you to step away.
Buyers will also appreciate high-quality financial records as this reveals competency and transparency on your part, allowing them to trust in the business's capacity for success.
If you are thinking of exiting a business soon or just want to have a succession strategy built into your plans, our team can help you make the most of your situation.
We can support you with enhancing your commercial finance so that you are empowered to find the succession strategy that works for you.
Stop the succession stress by speaking to our team today.