One of the fundamental laws of business is that no one should be considered irreplaceable.
Whilst losing a key manager can cause many headaches, they are often short lived and overcome with time, but losing a hands-on inspirational business owner can be catastrophic, both to the future of the business and its employees and of course the surviving family.

This article is not about finding insurance based solutions to the foregoing, but to stimulate thoughts about business strategy and organisational structures.

Many business owners often consider their business to be part of their retirement planning; a sale thereof when the time is ready often being the planned solution.

The value of any business is determined by a number of factors, one of the key drivers being future sustainable and maintainable earnings. So how can the value of your business be maximised if it cannot survive without you?

I’m a firm believer that it’s possible to have a “one-size fits all solution” to this, a mutually exclusive Plan A and Plan B!

It’s the strategic business owner that places value in their key staff as opposed to themselves, but that also requires investment. This involves investment in training, mentoring and having a skilled senior management team supporting and assisting you as the business owner.

Achieving this takes time and careful implementation, but in doing so you are also developing your Plan A and B!

Plan A – selling your business with an effective management team shows a purchaser that you’re not irreplaceable, thus maximising (by de-risking) the value from future income streams and thus the price you may get from an outright sale of the business. The purchaser can always strip out excess salary costs post-acquisition, so maintainable earnings can be adjusted upwards accordingly in the valuation model.
An MBO is also now a potential option, as essentially your senior team should be able to run the business without your “heavy” involvement.

Plan B – the lump sum you may get for your business from a purchaser may look attractive, but depending on your lifestyle, longevity and future income needs, it may not in the current low interest rate regime be enough for a long and happy retirement.
So don’t sell immediately? With an effective management team your business should run more or less without you and provide you with a future income stream (and a retirement interest other than trips to the garden centre!).
This can also lead to an MBO in the fullness of time, ensuring security of employment for your key and loyal employees.

‘One size’ can fit all!

Chris Ketley
UK200 Group Business Strategy Panel
Partner and Business Engineer
Knill James Chartered Accountants
www.knilljames.co.uk
chris@knilljames.co.uk
Connect with Chris on LinkedIn

Tags: UK200

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