Lines of succession in a company need as much attention as ever, says Brian Cremin of 3SIXTY

Ireland’s SME sector has thousands of companies that are well into their third decade, where the founder remains at the head of the operation.

In many cases, where the next generation of a family is involved in the business there is a clear line of succession. Where this is not the case, the company founder, who is typically the largest if not the only shareholder, needs to find a buyer for the business in order to unlock the financial rewards for their years of effort.

This time last year, many founders had clear exit plans, either in train or detailed in their own heads. When Covid-19 hit, keeping the business on the road became the only show in town. Plans to “take money off the table”, “take a step back”, or “bring in the next generation” were all placed on the back burner.

From our work with clients, we saw first-hand the impact Covid-19 has had on all types of businesses. Specifically, we saw the disruption caused to company founders’ hopes and dreams in terms of their own exit from the business they have invested years in developing.

No business owner wants to sell in what is seen as a down market. And this has created a nervousness for many around what to do next. Just because we are in this situation right now, there is no reason business owners should not extract the maximum value possible for the decades of work they have put into building their businesses.

In Association with

We constantly tell our clients that anyone coming in to buy their business today is doing so for the medium to long-term, and doing so on the basis of what took years of hard work to build. So, allowing the temporary impacts of 2020 to influence the value placed on their business is short-sighted. And expensive!

Even with what looks like another year of some level of disruption on the cards, if you’re a company founder it’s time to revisit those exit plans. Based on our own discussions with company founders over the last 12 months, 3SIXTY has compiled the Top 5 Founder’s Fears that we hear as reasons for continuing to postpone exit plans.

Why would I leave money on the table?

These founders fear the current environment means they won’t get the price they feel their business is worth.  This is not necessarily the case. They should take control of the valuation of their business by taking action to identify and implement improvements now.

Who would buy in this market?

These founders believe no-one is looking around for an investment right now. There is a lot of evidence pointing to strong appetite for (the right) investment at present. Founders need to focus on what differentiates them from competition. It’s always useful to conduct a benchmarking exercise to get an informed perspective on where your company sits relative to your competitors.

What would happen my team? 

Founders worry about the impact on their valued team members in the event of a transaction. Put a strong focus on leadership development and identify the emerging leaders in your business. This can provide a pathway to your own exit via MBO (Management Buy Out) or add value to your business in the eyes of a potential acquirer. If you haven’t got the right team, you need to do something about it now.

Who’s got my back?

The traditional advisors who have guided the business to this point have served you well. But bringing in a fresh pair of eyes to independently assess 'what can be done differently around here' is a powerful way of unlocking hidden value in a business and, in turn, increasing the value of the founder’s exit. This outside view, working in partnership with your existing advisors, gives you the best of both worlds.

Where would I find the time to make my business exit-ready?

Some founders feel they don’t have the time or headspace to implement the changes required to ensure they maximize their exit (in addition to running the business day-to-day). By including your team in this process, you can free up time. This delivers a win-win to the business. Your team benefits from additional responsibilities and you get much-needed time and space to focus. Also consider bringing in external skills on an interim basis to support in getting your business exit ready

Many founders will be grappling with some combination of these fears. So, where to start? Acknowledge that the pandemic turmoil is temporary. Longer than we’d hoped, yes, but the situation is improving. It’s vital to find time to get yourself out of the day-to-day doing of running your business and devote proper time to planning your exit. Having the right team around you, to share the day-to-day workload, is key to making this happen.

Perspective is important here also. The chances are that the founder, the senior management team, the staff and the traditional advisors who have supported the business for years are all bringing some bit of emotion to how they view the business. A fresh pair of eyes will bring a completely dispassionate and independent perspective and help identify areas for improvements which will increase the value of the business and, in turn, the value of the founder’s exit.

No-one should ignore the impact of Covid-19, but equally, don’t make it the reason your exit plans stay on hold. Most importantly, don’t feel you are on your own in all of this. Being the leader can be a lonely place. Look for support from people who have travelled this road. Talking to 3SIXTY – or companies like 3SIXTY – can be very useful in providing that external perspective which is critical to you maximising your exit benefits.

• Brian Cremin (pictured) is managing partner at management consultancy 3SIXTY