Family Success Planning: Win the Generation Game

There’s a lot of twaddle talked about the rise and fall of family businesses and family succession planning, like:

  • ‘Family-owned businesses are a small part the UK economy’.Actually they account for almost 95% of businesses in this country. So family succession planning is vital.
  • Family businesses ‘go from shirtsleeves to shirtsleeves in three generations.’(The first generation makes it, the second generation manages it and the third runs it aground).

The fact is that many family businesses fail because so few have a well-conceived family succession and leadership plans. It is believed sufficient for father to teach son the ropes and just assume that son will just carry on.

The reality is that family businesses are a vital part of the British economy, but their very smallness means that their needs tend to be overlooked by governments and by the family business owners themselves, who often do not provide an adequate family succession plan.

Consequently a number of mythical elements prevail. Here are just a couple:

  • Misconception: Family businesses tend to stay in the family.

Reality: Recent research suggests that just 55 percent of family business owners intend to pass their business to the next generation. This suggests that many family businesses will not be handed down in future and has major implications for planning a retirement sale. The underlying disruption and inefficiency that this causes within the British economy are incalculable.

  • Misconception: Going to work at your family’s business is like breaking the code of life. You get a cushy job and a fabulous inheritance when the previous generation dies or retires.

Reality: Only about six of 10 family businesses have sufficient resources to divide their assets fairly between all heirs. Furthermore, only a quarter of them foresee an ownership change in five years. And 40 per cent lack any kind of succession plan

When a company is turned over willy-nilly to “the kids”, that is where problems abound. What’s missing is a leadership plan initiated by the current family owners, yet the next generation is blamed for the failure.

Leadership Plans – the essential family succession planning ingredients

Competency – comes from developing the right experience and background to work in the company. Current business owners should be objective in matching future business requirements against the abilities of the next generation.

It may be a good idea for the designated successor to get outside experience in other (perhaps larger) firms, and/or to attend a reputable Management Training Centre from which a variety of short or longer courses are widely available. Alternatively, an experienced mentor (such as a CMC Partner) can do excellent work and facilitate on-the-job learning.

Commitment – Future success is unlikely if the next generation does not have the same belief in the founder’s business goals and philosophies. Sadly, many sons and daughters are drawn into the business through blind loyalty to their parents’ dreams and expectations, with little thought for their own aims and aspirations.

Character – is the most critical aspect of leadership. It arises from individual personality, and a vast reservoir of information, experiences and interactions. Business owners should assess the character and leadership qualities of their offspring before saddling them with a level of responsibility that calls for motivational as well as strategic and operational flair.

The more someone is aware of his/her personal and professional demeanour, the more successful will he/she be as a leader. This will almost certainly require the help and guidance of their forbears or someone like the aforementioned CMC mentor.

So we should set aside all the myths surrounding the success or failure of family businesses. Put simply, the next generation can lead family-owned businesses to greater success when the preceding generation provides the right preparatory support and commitment. In this, they may learn from the well-honed business and human resource practices of non-family businesses.

CMC Partners are well-placed to support smaller businesses that may lack the necessary internal resource for effective family succession planning and advise on whether or not a straight business sale might be preferable to a family handover.

Ten ways to ensure your family business does not implode from family matters

Ten ways to ensure your family business does not implode from family matters

There are plenty of advantages to family businesses. They tend to be financially conservative by nature, and focus on slow and steady growth; they are capable of reacting quickly and making prompt decisions as well as having the advantage of a long term perspective. However there are pitfalls, and if not addressed could end up causing a family business downfall.

1. Ensure your son or daughter understands what is required to join the business

Would you employ you son or daughter despite a potential lack of qualifications? What can they bring into the business over other potential candidates?  It may be that the family business is seen by the younger generation as a certainty, a safety net that they have taken for granted. If so, they may have taken their foot of the gas in terms of schooling and decided not to go to university, or put the effort into gaining relevant experience as a result. This is where the parent should set expectations early and insist on the requisite qualifications that would be required of a non-family member, after all the future of the business will potentially rest in their hands.

2. Make sure that training is undertaken

When you take on a new employee, unless you are very lucky, it is highly likely that there will be gaps in their ability compared to those required by the job and training will be required.  This also applies to taking on family members, in fact it is more important as the family member is likely to need to understand the wider aspects of the business.  It is vital no matter who is taken on, that formal and ‘on-the-job’ training is given and that career development is planned.

 3. Only take on family members if the business can support them

There is no point in taking on a family member if the business cannot support them. This could damage or even cause the demise of the business.  A son or daughter (as any other employee) coming into the business will expect competitive remuneration and is likely to be looking to get on in life with all of the usual trappings, for example a mortgage.  They may be prepared to wait a year or two, but if the business cannot sustain an additional employee it needs to be recognised as this will affect everyone already in the business by adding to the inherent costs, cash flow etc.

4. Ensure diversity

There will be specific areas of the business where the founder (e.g. parent) has focussed on and has an extensive knowledge of, for example they may have developed a piece of software or hardware.  It would be healthy to engage other family members in other areas of the business to ensure a wider appreciation of the business.  Developing in-depth knowledge in one area of the business and little in other areas is likely to cause a distortion when making decisions. Furthermore, and I see this in a lot of small businesses, it can become like an under-9 football game where everyone chases the ball at the same time

5. Appoint non-family members

Getting a fresh perspective on the business from outside the family will provide a much healthier environment.  It will also remove any family prejudices, or at least recognise them.  This can be done by employing non-family members of staff or appointing external advisors – such as CMC Partners.

6. Have a well-planned succession plan

I refer to my earlier blog – A family affair: Ensuring successful Succession. If there is no demarcation at the time of succession, in terms of roles and responsibilities, finance and remuneration and ownership, it will cause a great deal of angst with both the incumbent and the successor.  Communication and a well set out plan is key at any stage, but it is vital during the transition of the business from one member of the family to another.

7. Keep business and family discussions separate

This is not easy, but very important if there are non-family members in the business.  Washing the family’s dirty laundry in public, as far as the non-family employees are concerned is, unpleasant, not professional and will cause distraction to the job in-hand. Similarly, you don’t want your employees feeling excluded by discussing personal matters around them. Although employees will know and understand that they are joining a family business when they take on the job, and they will give you more respect if the business is separated from family affairs.

8. Have an ‘exit’ agreement

There may be occasions when a family member wants to resign to pursue other interests, becomes ill or does not come up to the mark as far as the business is concerned. If an exit agreement is not thought out beforehand this can lead to major disputes, usually over money and compensation.  This can be avoided with a well thought out agreement similar to a shareholders agreement.

9. Avoid Nepotism

It is important that the new family member becomes credible in the eyes of other employees.  Perhaps by obtaining outside work experience, academic qualifications or business experience.  Non-family members will very quickly lose motivation, and will lose respect for under-performing family members who are seen to get away by cutting corners, or have preferential treatment when it comes to matters such as time keeping.

10. Avoid Quarreling

Keep family disputes out of the business and business disputes professional and confined to the office.  Enough said!

Rather than failing for business reasons, family businesses often fail because of family reasons such as conflicting agendas and priorities either at work or domestically. You run the risk that family members assume that the rest of the family is automatically on the same page as them so they do not need to communicate.  It is vital that there is distinct demarcation between the roles of managers, owners, and family members, and that these roles are clarified and understood by all concerned.

As a family business, it is important to not fall into the traps described above. This is where an external advisor can provide a fresh perspective and bring in new ideas into the business.  If you would like to discuss any aspect of the above [with no obligation] please contact me via the form below.

Relocation

CMC Partners relocates the hub office to Thame

CMC is excited to announce the relocation of the CMC Partners main office, home to the marketing and finance team, to the historic town of Thame in South Oxfordshire on 1st February 2017.

CMC Partners, who specialise in helping business owners to build and maximise their business value in preparation for their exit or sale was established in 1989 with the previous 16 years located just outside of Wallingford in Oxfordshire. Our old office served us well for our partners, clients and professional partners, but it was time for a change and we couldn’t be more excited about our new location.

Our new office is located in the heart of the beautiful market town of Thame, awarded as a ‘Rising Star’ in the Great British High Street Awards.  Easily accessible from the M40, our office will remain as a hub for our CMC Partners who are based close to their clients in their local business communities throughout the South of England, East of England and Midlands.

CMC can now be contacted on 01844 319286, alternatively you can contact your local CMC Partner at their usual number. Our new address can also be found on our contact page here

We look forward to the start of a new chapter in our long 27 years’ history and most of all welcoming our clients, partners and professional contacts to our new office.

Sales lessons companies learn the hard way

For most companies, if you’re not out selling, you’re probably not winning.

Unfortunately, selling successfully to other businesses is often easier than it looks. There are several sales lessons or hard truths companies are likely to encounter at some part of the sales cycle.

Here are five of the most important  sales lessons…

  1. Selling cost savings is tough

Few companies like spending more money than is necessary. That doesn’t mean that a product or service designed to save money is always an easy sell. For many businesses, products and services that can add to top line revenue are far more attractive than those designed to bolster the bottom line.

While this doesn’t mean that selling cost savings is impossible, if your primary customer value proposition is savings, don’t be surprised if you end up on the back-burner.

  1. The sales cycle is almost always longer than you expect

Entrepreneurs starting new businesses are often told to take the amount of money they think they need to get off the ground and double it. The reason: it usually takes more time, and therefore money, than anticipated to get going.

The same logic often applies to the buying cycle. If you believe, for instance, that it will take three months to close a sale, think again: there’s a good chance it will take longer, and perhaps significantly longer. So, if you haven’t yet established the length of the buying cycle based on real-world experience, assume you’re underestimating.

  1. Timing is everything

The biggest sales challenges B2B businesses face is the budgeting cycle. Budgeting cycles that are especially common at larger companies. Budgeting cycles are particularly relevant when selling larger-ticket products or services, or products or services associated with capital budgets, and can easily delay deals by six months to a year.

  1. There’s no place in the budget for you

Your business may have the perfect product or service, but successfully selling it will often require more than affordability. In many cases, the where is just as important, if not more important, than the how much. If a prospective customer can’t easily figure out from which budget your product or service should be paid for. More common occurrence than one might think, your salespeople may be left in sales purgatory regardless of how attractive your offering is.

  1. Legal can be a deal-breaker

The last steps in the sales process, legal, can easily delay a deal, or break it altogether. Don’t assume that a standard agreement will pass muster. The reality is that your agreement is likely to be sent to a lawyer who will rarely have the same urgency to close that you do.

Perhaps the most helpful advice is to consider it as a buying cycle rater than a selling cycle…

Getting Your Business ‘Fit for Sale’

Building a business takes hard work and skill, so what makes your business more attractive to a buyer than another, ie ‘fit for sale’?  Typically a business that is fit for sale will be a company with less risk associated with its future potential, remember buyers may be looking at several potential acquisitions simultaneously.  The one they choose may not be the one with the greatest growth potential and exponential projected earnings growth, but the opportunity with the less risk.

As a rule of thumb lower risk companies command higher valuations than higher risk companies – it just makes sense.  If you are a buyer acquiring a privately held company, you inherently will also be acquiring a certain level of risk. The opportunities with lower risk will generally command a better valuation because the return on investment is considered to be safer than it is for a more risky investment opportunity.

So to ensure your business is fit for sale at the right price the 3 areas to look at are analysed below.

How well documented are the company’s operations, and how up to date is the company’s technology?

What most small business owners hate is paperwork. However, during the due diligence, buyers will ask you to provide written evidence that the company’s continuity can be maintained even if management changes.  The easiest way to prove this is to create procedural manuals that clearly outline how the company functions.

Another good idea is to creating detailed job descriptions that outline the key role employees play and clearly demonstrates to a business buyer that your company’s success is not due to luck but is driven by a well organised team.

On top of that, make sure that your technology is up to date.  Even if you operate in a “low tech” industry, the reality today is that every company uses some level of technology in its operations.  At a minimum make sure that your accounting system is robust and can handle the demands of a buyer during due diligence.

What is the company’s exposure to market shifts?

A trap that many business owners fall into is commonly called “customer concentration.”  It is amazing how many business owners we meet are quite proud of the fact that Customer A represents 50% of the revenue of the company and that percentage is steadily growing. Although having a strong relationship with a blue chip customer does indicate a level of customer service that many would envy, it does raise the level of risk for a buyer.  Simply put, if Customer A decides not to do business with the new owner, he or she is suddenly in a position of being forced to replace nearly half of the company’s revenue overnight.

Most business owners will claim that would never happen because the relationship is mutually beneficial and new owners need not worry about losing the business. However, even if the relationship is contractual, buyers will view the business as risky. Do not become complacent and let your business become dependent on a single source of significant revenue.  This issue cannot be over stressed – always look for new business and new opportunities.

Does the company have a developed management team?

Finally, perhaps the area that buyers will focus the most attention on is how dependant the business is on the current owner.  Unless you are planning to stay with the company indefinitely post-acquisition, it is vital for you to hire and groom managers for your business.  And once you have hired them you then need to take the next step and do something that most entrepreneurs find very hard – delegate key decisions to them.

Buyers grow very concerned when they encounter a business that relies solely on the founding entrepreneur to make all decisions.  Successful companies that are fit for sale are led by a team of key individuals, not just the founder.  To reduce perceived risk even further, it is usually best if the person(s) you identify to groom are not family members.

These are just three common areas where we see buyers looking closely at the level of risk associated with an organisation. There are certainly others that we encounter regularly during due diligence.   You need to examine your company as if you were a buyer – this is very difficult to achieve if you are running your business day to day.  It is an ideal opportunity to get some independent and objective advice, call 07720 397040 or alternatively contact Phil via this form.


Tis the Season for Reflection….Fa La La La La

Tis the Season for Reflection….Fa La La La La

In the words of Winston Churchill, ‘Christmas is a season not only for rejoicing but of reflection’. 

As a small business, there is much to do as the year draws to a close but the end of the year marks a threshold with a perfect time to pause for reflection. Ask yourself and your team ’How did we do?’ and ‘What do we want to do better next year?’. Take stock of the year, celebrate the successes, evaluate your goals and plan ahead for a successful and profitable 2017.

For us at CMC, it has been a joy to help our business owner clients on their journey towards achieving their personal ambitions for their business. Whether to grow, increase value, retire or sell their business, we have guided owners through important decisions and provided clear actionable steps for their successful outcome.
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CMC Partners would like to wish you all a very Merry Christmas and a Successful New Year!

Sales

Survey – Taking Control of Sales

For many small businesses, it is easy to focus all energy on daily business operations and serving existing client demands whilst others who seek to acquire new customers find controlling sales a serious challenge. Implementing an effective process will help gain new business from current and potential customers, essential for growing businesses.

To help support business owners through the trails and tribulations of the sales process,  we are keen to hear from you and discover the obstacles you are currently facing.

Sales Process Survey

This survey has been designed to gain an insight into these challenges to identify common themes and trends.  As a result of your feedback, CMC Partners will share with you:

  • A summary of our findings – all contact details and answers will remain completely confidential 
  • A copy of our forthcoming white paper, offering practical advice and best practice guidance to help you successfully manage your sales process going forward

In the meantime, should you wish to contact us for more information, please complete the ‘Contact Us’ form at the bottom just below the questionnaire.
Create your own user feedback survey

How do I sell my business in the next 6 months?

As the UK economic recovery appears to have taken hold in 2015 & 2016,   as well as the problem of overtrading and running out of cash, owner manager are looking at their exit options.  The vast majority of owner managers have never exited a business before, and many generalist business brokers exploit this with promises of high multiples or valuations and many potential interested parties.

I also wrote an article earlier this year stating why now is a great time to sell your business, read this now

However, the reality for most UK businesses (or read ‘owner managed SMEs’) is that at the time they want to sell, there may not be many buyers or acquires around at the right stage. As most owner managers are actively involved in ‘their business’ , without a great deal of forward planning, they will have to remain involved in the business long beyond the sold date.  Even when he or she gives up day to day control, they will almost certainly be subject to an earn-out or deferred consideration.

Also, they will also face being an employee with a boss rather than an owner manager themselves.  This means that for many exit strategies, management succession is the top of the priority list, i.e. you must invest early in a strong management team. This is no bad thing, because having strong management will drive growth, and maybe even make them possible buyers as well.

CMC Partner have produced a 10 step checklist for improving your chances of a successful exit, it is available to download here.

Also to get the best price, an owner manager needs to ensure a maximum valuation for the on-going business.  The business valuation is dependent on many things, not least the likelihood of future cash flows.  Recurring income is the star item, as long as there is growth potential within it.   Whilst having recurring contractual income is great, it is the details that matter.  A 5 year history of a client consistently repeat purchasing is arguably more attractive to a buyer than a 5 year contract that includes onerous clauses is a red flag to an acquirer, i.e.  a clause allowing a customer to terminate because of a change of control.

For every sale, we need to think about an acquirer, and getting your business into their target sights.  Most acquirers prefer to be able to target specific businesses whether directly or through a search, preferring not to enter into a competitive process or auction. They want to minimise change in the target business while they take it over.  One point we always try and get a seller to thing about is how to get the messages to possible acquirers before they make an offer.   As part of an exit strategy, have you considered what will make you attractive to a trade or strategic acquirer?  When you have identified what an acquirer might find attractive in your business, you need to get your name out with some PR, e.g. exposure in national trade press, in online articles covering these areas with specific keywords or phrases.  Get your advisers researching possible acquirers and ensuring your business is on their radar.

To answer the question posted in the title of this article, the answer is ‘no & yes’.  If you have planned your exit strategy and done your research, and readied your business for sale, then you can sell your business in the next 6 months.  However if you have just wakened up to the hope that you want to sell your business (maybe you have had 1 too many disputes with your staff or customers), then yes you could sell your business at a heavily discounted valuation.  But why would you do that, get a better price by starting the ground work today.

Making the decisions required to plan for the sale or exit from your business is never a simple set of choices and you will need some guidance.   If you as an owner manger want to sell your business in the next 12 to 18 months or if you would like to explore how CMC can support you through your business journey, contact us via this form.