What makes a successful business transition?

Advisely board member Darren Smith recently jumped onto Advisely to answer all your burning questions on transitioning your business.

Having recently sold his award-winning financial planning practice last year and now working as a business coach at Slipstream Group, Darren tackled everything from preparing a business for sale to finding the ideal counterparty.

Here are three of the most interesting conversations that came out of his AMA:

Q: Given your recent experience in successfully selling your award-winning practice, what are the key factors you believe are essential in preparing a business for a smooth and profitable succession? Additionally, what common pitfalls should be avoided during this transition period?

Certainly! Succession planning is crucial for ensuring a smooth transition in business ownership internally or externally through a trade sale.

Some key factors to consider when preparing for a profitable succession:

There are three major considerations normally – time, people, and finances.

1. Begin succession planning well in advance. Don’t wait until the last minute. 
   
   
2. Understand and document what the business is looking to achieve and how this interacts with what the business owner's goals are.
   
   
3. Build strong foundations and always look for improvement. You want to make your business as attractive as you can to any potential purchaser. That doesn’t mean being ready to sell straight away, but you're constantly refining your offering, your operational processes and your client engagement to put you in the strongest position possible. You're also setting the business up to run well even when you are not there. Having the right team in place with aligned values is a core pillar.
   
   
4. Engage senior leaders in the process.
   
   
5. Assess current talent. Identify potential successors within your organization. Assess their readiness and potential for leadership roles
   
   
6. Assess other options and have a plan A, B and sometimes C.
   
   
7. Invest in professional development. Provide training and development opportunities to groom future leaders
   
   
8. Consider the emotional impact. Succession can be emotionally charged. Acknowledge feelings and provide support to those affected
   
   

Common pitfalls to avoid:

• Lack of preparation and not allowing enough time.
  
  
• Poor communication.
  
  
• Neglecting succession planning: Don’t postpone discussions about roles and successors. Waiting until a significant event can lead to confusion and conflict.
  
  
• Keeping succession plans secret: transparency is crucial for a smooth transition.
  
  
• Trying to do it yourself when you don’t have experience, i.e. not involving trusted professionals like advisers, lawyers, accountants or coaches.
  
  
• Losing sight of the impact on clients and the team.
  
  
• Unrealistic expectations or having a 5-year plan that is always 5 years off…
  
  
• Cultural misalignment.

Q: What would you say are the most important characteristics to consider when it comes to the ideal counterparty in a transition like this? I'm guessing there are both tangible and intangible factors. But what would make you see one as more suitable than the other? 

You need to spend time understanding the various characteristics of any transaction. As we were selling the whole business we needed to ensure that cultural alignment was high as we were passing over guardianship of 1,400+ clients and 30+ team members.

Given our strong connection with the purchaser over 8 years and involving some of their leadership team on our board by invitation, we were well placed to assess this alignment. You don't always get this luxury in an external sale event as it is time-pressured. The more tangible factors were financial capacity and operational capacity to integrate the business.

Q: I'd love to know what you would do differently if you had your time over again. Along with what worked really well for you.

What would I do differently:

Personally, I don’t tend to spend too much time looking backward in the rearview mirror and what I could have done differently.

In terms of the succession event and process, there is nothing I would do differently; it was very quick and respectful. We had been preparing for it to happen at some point but the opportunity arose and we embraced it. Probably the bit I was a little underprepared for was the emotional rollercoaster compounded by the speed of opportunity to execution.

Similarly, with the business in the lead-up, we had spent considerable focus on building a stronger and more profitable business.  We knew that if we remained focused on building a strong business and delivered value to the clients that we looked after, we would have something attractive to many.

In hindsight we certainly were focused on the right things, the question I have asked myself is whether we could have embedded some of the changes more quickly. The short answer is yes, particularly around business efficiency.

What worked well:

• The business was ready and I was personally ready
  
  
• The business was in good shape and attractive to many potential buyers
  
  
• The business was well-regarded and we were proud of what we had jointly created
  
  
• Facilitated a great outcome for all stakeholders involved: business owners, staff, clients and the purchaser. 
  
  
• We had nurtured a potential acquirer over many years and created an environment of advocacy and respect
  
  
• We had progressively evolved the business and focused on building a strong culture and team that survived beyond me.

Keep an eye out on the discussions section here for upcoming AMAs.