Succession Planning: In business it’s never too early to plan for the future
Finance Wales holds a range of succession workshops and
drop-ins across the country; our most recent event was held at the
University of South Wales’ Newport campus. For more information on
events in your area email: firstname.lastname@example.org
So you have a successful business, you’ve got good market
coverage and a strong management team. You have a solid five year
strategy, your business is growing. But wait a moment; have you
thought about what happens when you want to sell or retire?
It may seem a lifetime away but it’s never too
early to start succession planning. That’s the key message from a
recent round table event held at the University of South Wales
Newport campus, facilitated by Finance Wales.
“In a perfect world you should have your exit
strategy planned as early on as possible,” explained Institute of
Directors (IoD) Chair Robert Lloyd-Griffiths.
“The problem is many business owners are not
thinking about this, they’re thinking about running the business
and building value in the company. Succession planning often gets
pushed to the back of the queue” explained Mark Hislop a corporate
finance adviser and succession expert with Advantage Accountancy
Start planning now
Here in Wales SMEs are king. Our economy is
driven by dedicated owner-managers. More than half of business
owners in Wales are over 50, with a significant number already over
retirement age. That means a lot of Welsh business may be looking
to change hands in the next few years – with owners looking to pass
on their experience to the next generation. If they don’t have a
succession plan handing that baton on may be harder than they
“You probably need a two to three year period,
at least, to get your business ready for sale,” – explained James
Williams, a partner in Blake Morgan specialising in corporate
finance and business acquisitions.
“You need make sure you have good governance
in place. You have to think about what may come up when prospective
buyers do their due diligence checks – anticipate that and your
business will be more appealing. A legal audit is a very good idea
to help smooth the process.”
“You also need time to do a stress test,”
added Mary McDonagh from Kilsby & Williams. “That’s vital from
a tax-planning perspective. There are often a lot of hoops to go
through if you want to take advantage of the substantial tax
“Prospective buyers like to know you have your
ducks all in a line. That the company is profitable and any
takeover will go smoothly,” explained Uprise VSI’s finance director
For many owners in Wales that means they need
to act soon.
‘A friendly transaction’
There are a number of options to consider. Do
you pass your business on to a family member, sell to an outside
buyer, or keep it local and sell it to your existing management
“We’ve worked with a range of companies – from
micro to medium – to help with succession deals. There’s a growing
appetite for management buy-out (MBO) and vendor initiated
management buy-outs (VIMBOs) as well as more traditional trade
deals,” explained Joanne O’Keefe an Investment Executive at Finance
MBO deals are increasingly popular with both
owner-managers and funders.
“From the point of view of the seller, a
disposal of the business to an MBO team should be easier to
achieve,” explained Finance Wales’ succession expert Stephen
“The vendor will be selling to a trusted team
which they will have known for years. This should be a
friendly transaction between a willing seller and buyer.”
“An MBO often means a vendor has to offer
fewer warranties to the buyer,” added Gary Partridge, Lexington
Corporate Advisors. “This can lead to a smoother sale
Buying a business
What if you’re a management team looking to
buy-out your company when it comes on the market?
The team at Chepstow-based creative firm On
Screen Productions (OSP) recently did just that.
Two-years ago new owners Vikki Byrne, Lydia
Owen and Mike Dyson started preparing for the buy-out. They took
more responsibility for the day-to-day running of the company. This
year they combined personal capital with a six-figure mezzanine
loan from Finance Wales.
Explaining why they undertook the management
buy-out, Mike Dyson said: “Having worked for OSP for many years, we
saw this as a unique opportunity to buy into a business to which
all three of us have a deep-rooted commitment.”
“Management buy-out teams are comparatively
easy to fund,” Galvin said. “It’s a well-trodden path for
experienced funders and advisers and Finance Wales is well-placed
to achieve an outcome suitable for all involved.”
If you’re considering this option you need to
have a good team in place a few years before you aim to sell.
“Taking on and nurturing a senior management
team and also letting go of the reins - that’s a bold decision but
one that will pay long term dividends,” explained Mervyn Ham,
company director of Iridium Corporate Services and an experienced
trade buyer of businesses.
Succession funding is
Whether you’re selling a business or looking
to buy there is help available.
Launched in April 2016, the Wales Management
Succession Fund is there to help safeguard the future of Welsh
businesses. Loans of between £500,000 and £3 million can be
made from the £25 million fund. These can be repaid over a five to
seven year term. A number of the other funds managed by the
Finance Wales can offer succession support - no matter what level
of assistance you need.
“Whilst it can be a daunting conversation,
talking to advisers early on is really important,” added Alun Yule,
an SME relationship manager with Lloyds Bank. “It gives the funder
confidence and makes it easier for banks and other funders to help
and support you – whether you’re selling a company or looking to
So what’s the take home for Welsh
“Get the ball-rolling,” said Lloyd-Griffiths.
“Look at your options for sale and make sure you get a plan in
place. Phased transitions are often best for SMEs, so any
exit-strategy needs to look at a long term plan.”
For more information on support
Finance Wales can give, visit www.financewales.co.uk or
call 0800 587 4140