Good practice tells us we should have business continuity plans so that in the event of some problem affecting the business we can continue trading with as little impact as possible.
One of the scenarios in a good business continuity plan is to assess the consequences and mitigate the negative effects of key people being unavailable – including the business owner(s). For a small to medium size business one of the critical points of failure is the owner. Take them out of the operation, even for a short time, and the impact can be severe and sometimes long-lasting. Have you experienced any of these problems – or don’t take time off for fear of these happening?
- A key client relationship gets impacted
- A proposal can’t be completed
- The development of a new product or service doesn’t get finished
- Cashflow suffers as collection and payments lack someone to authorise transactions
- Team members lose focus without the ‘boss’ being around…and on it goes.
Most owners appreciate this continuity issue and have considered what to do about it but then get distracted, too busy or worse still become unavailable to the business, so the problem of business continuity doesn’t get fixed.
Where does this and exit planning come together? In the simplest terms one of the primary objectives of exit planning is to prepare the business for when you are no longer involved. If that sounds a bit like business continuity planning, it is.
Consider what potential acquirors want from your business – these may be investors, trade buyers or your own team (via a management buy-out MBO or employee ownership trust EOT). At a point in the future, they want a business that is capable of running, in fact thriving, without you. This is true whether or not you are part of the sale.
An investor may buy into the business because of you and want you to stick around to continue sprinkling your magic – however even in this case the investor will want to know that should you be unavailable to the business, for example through illness, the company’s performance isn’t jeopardised. Therefore, your business continuity plan is a vital consideration for a successful deal.
With a trade sale you may be required to stay in the business for a period to ensure the ownership transfer is successful and the financial performance of the business meets the projections you have agreed. If your payments are dependent on performance, it may be in your interests to stay involved but it is highly likely that for you and the acquirer this isn’t a situation you want to continue for long.
If the exit is by way of an MBO or EOT, again you may be involved for a period to ensure the change is successful and the new team may want to know you are available to support them and provide advice and help as the new management regime takes over. This form of sale may require your involvement for longer than other exit types, but it will come to end. However, there may be a high reliance on an effective business continuity plan in the event of your unavailability to ensure you receive your (usually) phased payments. If you can’t perform your role and there isn’t a sufficiently well-developed business continuity plan the overall exit strategy may suffer.
In these examples of exit strategies business continuity is an integral condition for success. An exit plan is a prudent element of business planning and if in addition it provides a benefit to you and the business even before you plan to exit it will pay for itself many times over.
At some point in the future, you will no longer run your business. An exit plan sets out how you want that to happen, and it also provides you with a business continuity benefit should you be unavailable in the meantime.
Start the planning process now. Contact Henchards to find out how.
(Photo by S&B Vonlanthen on Unsplash)