12 Jul 2018 | 10.22 am
Guest Blog: Emma Cadden, RSM Ireland
With succession planning, preparation is everything
12 Jul 2018 | 10.22 am
A deep understanding of the market place, knowing your value and being organised are essential when succession planning, writes Emma Cadden (pictured), RSM Ireland’s Transaction Advisory Services Director
It was Albert Einstein who said, ‘Nothing happens until something moves’. Nowhere is this quote more relevant than in the ever-transient nature of business, where thinking ahead, even if that means new leadership, will determine and shape future success.
Welcome to the world of succession planning, a process for identifying and electing potential successors for a business, whether that is a family member, employee or new ownership.
At a time when Ireland has dusted off the remaining ashes from those tough recession years to morph into one of the more attractive European countries to invest in, strategic planning is key.
While Ireland’s merger market fell to its lowest level since 2009 in the first half of this year, there are signs of improvement on the horizon.
For the company planning to sell or set in motion a succession plan, timing is everything. What we’re seeing now is a lot of people in business in the aftermath of the recession consolidating where they are and finding they are now in a better position for a handover.
This could be a parent passing the company to their children or what we’re seeing is a notable increase in management buy-outs, where the current management team within a company want to take either full or part ownership of a business.
A good example of this is the private equity firm Causeway Capital who recently announced a €4m investment to back a management buyout at the Co Meath-based recycling-plant design company, Turmec. Not only are we seeing more money in the market generally, but particularly with regards to private equity where there is currently a lot of activity.
But what are the key factors in succession planning? Let’s start with preparation. To get the best value for your business you must be aware of who is likely to be interested in investing or acquiring, the best way your business can be valued and where you can maximise your value.
You must also manage your own expectations within the confines of the market and have your due diligence in place so that if someone is coming in to look under the bonnet of your business, you are happy that you have the information they will need.
Remember that you are going out into the market with a message that this business is well managed and has scope for growth, whether that’s 10% or 20% in the next financial year, and that growth must be achieved whether you’re in the middle of a transaction to sell or negotiating a sale. Therefore, being prepared can help reduce distraction from the day-to-day management of the business.
Be realistic also, because there is no point presenting the sun, the moon and the stars in the planning phase if the numbers and documentation don’t stack up. Make sure contracts are formalised and able to deliver continued revenue and growth, because if they don’t they will only lead to a loss in confidence in the company’s future.
At a basic level, a well-organised exit strategy will always ensure there are adequate books and records, completed audited financial statements and reliable management accounts.
Finally, don’t think the deal is done until it’s done. That’s when the money is handed over and contracts are completed. Only then should you relax.
• RSM Ireland specialises in providing advice to mid-market businesses on audit, tax and consulting matters.