The Heir to Your Business’s Throne

Insights by Robert Fiske.

Succession has been a subject getting much news coverage of late, but do not assume that it only applies to family businesses (be they royal or otherwise!). Unlike the House of Windsor, there will be a number of options for the transition of leadership in most owner-managed businesses – and this needs careful forethought and planning, even if the heir apparent is a family member.

When an owner-manager exits, the most likely scenarios are trade sale, management buy-out (MBO) or family succession. There are numerous considerations to be made whatever the route taken, but in all cases the role of the current owner – and how that is to be subsequently covered – will be key. In the case of a trade sale, do not simply assume that a buyer will have all that is needed. They may well have many (perhaps even all) of the functional capabilities required to run a business like yours but that will not be their only area of concern. They will want to know how dependent the business is on the exiting owner-manager(s) especially in terms of customer relationships and technical know-how. In many private businesses these aspects are all too often the domain of one or more owner-managers and where this remains the case at point of a sale, it will raise a ‘risk flag’ to a buyer.

Without wishing to over-stretch the analogy, it has been pretty clear that the new King underwent a long and extensive apprenticeship so was well-positioned to take the reins (or should that be reigns?!) once required. A lot of planning had been undertaken and enacted, in this instance over many more years than would be typical in a business context. Nonetheless, it should be remembered that even in business, one can never be entirely in control of the timing – so plan well ahead.

We will be covering aspects such as the dangers of owner-dependencies and managing succession for a successful exit in our forthcoming seminar “How to Avoid An M&A Disaster When Selling Your Tech Business”.

Also, the April 2023 update of our report analysing the State of M&A in the UK Software and IT Services Sector is now out. Request your copy here: www.prismcorporatebroking.com/report