Exit Preparation 7. Exit & Succession - having a team that wins without you.

We’ve talked about the deceptively gut-wrenching experience of preparing your business and then executing an exit. In my experience, even people who are absolutely done and can’t wait to get out suffer authentic feelings of loss and distress when being out becomes a reality.

I have two clear suggestions for anyone in this position. Have an exit plan. The business you’ve nurtured, despite what you might think, is highly unlikely to sell itself. It needs you to think hard and deep about what your expectations are and in amongst that is one of the golden rules.

You have got to present your business with a competent, experienced team that can continue the success of your business after you’re gone. Why? Because if you think about it from the potential buyers perspective, there is one thing that is not on the table as an asset. You. If they believe even for a second that you are the one thing that holds it all together and there is danger if you step away, the perceived value of the business will plummet.

This is not scientific, but I want you to think about the thing that gets bandied about in business valuations – “Goodwill”. All I’m saying here is that unless you are smart about this, the goodwill is you and will be easily discounted away.

In New Zealand's SME business landscape, SMEs are the backbone of the economy, contributing significantly to innovation, employment, and economic growth. For the owners of these SMEs, building a successful business is often a life's work, imbued with personal passion, relentless dedication, and an unwavering commitment to community values.

However, as these enterprises evolve, the consideration of an exit strategy and the critical importance of maintaining a strong team, or bench strength, for the continuity of the business post-exit become essential aspects of long-term planning. This article delves deeper into the significance of these components, offering insights into why they are indispensable for NZ SME owners.

Strategising for the Future -

The Importance of Exit Strategies

An exit strategy is essentially a plan for how an SME owner will step away from their business. This could mean selling the business, passing it on to the next generation, or merging with another entity.

Far from signaling the end, a thoughtfully developed exit strategy ensures the business's legacy and sustains its contributions to the economy and community. It provides a clear direction for the future, safeguarding employees' jobs, protecting the owner's financial interests, and preserving customer relationships.

For NZ SME owners, whose businesses often reflect their life’s work and values, the choice of exit strategy is deeply personal and impactful. It influences not just their own future but also that of their employees, customers, and the wider community.

A successful exit strategy respects these relationships, ensuring that the business continues to thrive and maintain its foundational values even after the owner's departure.

Bench Strength

Securing Continuity and Fostering Growth

Bench strength refers to the depth and readiness of the team to assume greater responsibilities or leadership roles. In the context of SMEs, where each member’s role is crucial, a strong bench is the cornerstone of business continuity and resilience. It ensures that, regardless of leadership transitions, the business can maintain its operations, culture, and service standards.

Developing bench strength is an ongoing process that involves identifying potential leaders within the organisation, providing opportunities for skill development, and fostering a culture of mentorship and knowledge sharing.

It's about preparing the business for future challenges by ensuring it has the internal capabilities to adapt and grow. This is particularly important in New Zealand, where the tight-knit business community and the emphasis on trust and personal relationships mean that leadership changes can have significant ripple effects on the business’s reputation and client base.

Synergy Between Exit Strategy and Bench Strength

The integration of a well-defined exit strategy with a robust plan for bench strength is a delicate balancing act that requires foresight, planning, and continuous effort. SME owners must begin by clearly articulating their vision for the business’s future and their personal goals.

Understanding the current valuation of the business and identifying the key drivers of value can inform both the exit strategy and the development of bench strength.

Succession planning, whether for passing the business onto a family member or preparing an internal candidate for leadership, is a critical element of this process. It involves more than selecting a successor; it requires a comprehensive approach to preparing the business and its team for the transition.

This includes legal and financial preparations, as well as strategies for ensuring the continuity of business operations and culture.

Challenges and Considerations

Developing an exit strategy and building bench strength are not without their challenges. For many SME owners, these processes can seem daunting, particularly when faced with the day-to-day demands of running a business. Concerns about the potential impact on employees, customer relationships, and the business’s legacy can also pose significant emotional and psychological hurdles.

Furthermore, the rapidly changing business environment, driven by technological advancements and shifting market dynamics, adds complexity to these planning processes. SME owners must remain agile, adapting their strategies to changing conditions and seizing opportunities for innovation and growth.

Strategic Steps for SME Owners

For NZ SME owners looking to secure the future of their businesses, several strategic steps can be taken -

1. Early Planning - Start thinking about exit strategies and bench strength development early in the business lifecycle. This allows for more options and greater flexibility in planning.

2. Professional Advice - Seek guidance from financial advisors, legal experts, and business consultants who specialise in exit planning and succession. Their expertise can provide valuable insights and help navigate the complexities of the process.

3. Employee Engagement - Foster an inclusive culture that values input from all team members. Engaging employees in the business’s future planning can help identify potential leaders and ensure a more seamless transition.

4. Continuous Learning - Encourage and invest in continuous learning and development for both the owner and the team. Staying abreast of industry trends, new technologies, and management practices can enhance the business’s adaptability and resilience.

5. Emotional Preparedness - Acknowledge and address the emotional aspects of exiting the business. Planning for life post-exit, including personal goals and activities, can help ease the transition for the owner.

Conclusion

For SME owners in New Zealand, the integration of a thoughtful exit strategy with a focus on developing bench strength is not just a business imperative but a reflection of their commitment to their life’s work, employees, and community. By taking a proactive approach to these aspects, SME owners can ensure that their businesses not only survive but thrive in the future, maintaining their legacy and continuing to contribute to New Zealand’s vibrant economy.

Just a reminder. If you are even considering selling your business, I encourage you to have a closer look at the RHQ SME Exit Preparation Programme. It’s six weeks of your life that could make a profound difference and remember, you can do it all without needing to take your attention away from either your business or your family and I will be on-hand to help with whatever you need.

Click [here] for a summary of what the programme is about.

[1]: SME Exit Preparation Programme summary.pdf