Succession Planning for SMEs Successfully exiting a business requires a plan …

© Prospero Accounting Ltd Typical business person facing succession planning issue … Successful business owner Actively working in/on their business Invested some serious‘sweat equity’over the years Regard their business as their pension Thinking about working less in the next few years Considering how to ultimately leave their business Not sure how they will actually get out Wanting to maximize the value and wealth generated from their business

© Prospero Accounting Ltd Most private businesses will be affected by some sort of succession issue either closed, sold or turned over to others Substantial investments in time and value in £’s will be transferred as a result In many cases it is the single most valuable asset of the business owner Timing is essential as it may be a buyers market – i.e. there will be more sellers than purchasers in the marketplace (consequently expected proceeds from the sale of your business shares may not be sufficient to meet your retirement needs) The transfer of business wealth … 60% of all entrepreneurs aged 55 to 64 have yet to start discussing their exit plans with their family, business partners or advisors

© Prospero Accounting Ltd Thinking of passing the business to the next family generation? … At some stage, many owners consider passing on their business to their children BUT Just over 30% of all family-owned businesses survive into the 2 nd generation 12% will still be viable into the 3 rd generation with only 3% operating at the 4 th generation and beyond SOBERING STATISTICS!

© Prospero Accounting Ltd There are three quite distinct phases in the life cycle of business ownership, each with a different strategic focus … Time Strategic Management and working on building the business Exit From 3 years out Commencement to 3 years out Succession Management - preparing for exit Transaction Management - Exit and\or sale process

© Prospero Accounting Ltd So why do SMEs not have a succession plan? … (% respondents who agreed with these statements)

© Prospero Accounting Ltd Business itself is not yet ready to be sold No commitment or interest from family members to ownership The owner is not ready to let go, sell or retire The business isn’t valuable enough to meet goals There isn’t anyone the owner knows who has the overall knowledge to help Don’t know who to sell to Other reasons put forward by business owners … The most common barriers to action are fear, uncertainty and procrastination – knowledge overcomes these barriers

© Prospero Accounting Ltd Typical business life cycle … Only 1 in 10 owners gets a price for the business anywhere close to what they want or expect! Why? Start-upGrowthMaturityDecline X Initial thoughts of exit Y I think I need a plan £ Time Thoughts of exit strategy Transition plan is created Optimal Transaction Day x x x x Sub-optimal transaction day or … because they leave it too late!

© Prospero Accounting Ltd The “value” of any business lies in the present value of the previous year’s profits and the transaction value … * Transaction value is usually driven by the earnings record ** Opportunity to extract extra value Time £ Earnings per year Earn Out/Retention** Plus Transaction Value*

© Prospero Accounting Ltd Recurring earnings depend on how well the business is managed … Time Strategic Management Profit improvement Business development Working ON not IN Building underlying value Positioning

© Prospero Accounting Ltd The owner’s proceeds from the transaction value is driven by how well the transaction is managed … Maximum Value £ Minimum Value £ How you sell When you sell How well you sell Tax efficiency To whom you sell Transaction Management Well managed transactions begin with an effective transition process

© Prospero Accounting Ltd The GAP is wide in how business owners view succession planning …

© Prospero Accounting Ltd Ideally planning starts 3-5 years prior to exit It occurs at the time when the owner can sell their business for the highest price – not just adequate price It occurs with a value that meets personal wealth objectives of the business owner The owner’s wishes for the future ownership / conduct of the business are met – a safe pair of hands How Prospero measures “success” in succession planning … All 4 are necessary requirements

© Prospero Accounting Ltd We’ll stimulate their thinking Provide them with ideas Answer their questions Introduce them to a process that will help them: Structure and achieve their business transition - their way Deal with the real ‘human issues’ associated with succession planning Build and create more wealth from their business This is what the business owner can expect from Prospero …

© Prospero Accounting Ltd Knowledge about the optimum time to get their succession planning underway An appreciation that a value added project management approach offers a tailored solution necessary for a successful exit strategy An understanding of the succession planning process that they can actually manage and increase the likelihood of achieving their goals and desired lifestyle A business owner will obtain these benefits:

© Prospero Accounting Ltd If you are interested in successfully exiting your business, please contact Rennie Evans by: Telephone - office: Mobile: We will be happy to arrange an initial half-day meeting, free of charge, to see if we can be of assistance to you. Next steps …