By Dr Troy Coyle, HERA CEO
Succession planning is something that we hear is a critical business issue amongst many engineering firms. Our Stirring the Pot interview with Regeneration HQ founder John Luxton, illuminated strategic considerations and solutions for the many business owners who are actively grappling with succession planning or starting to think about how to exit their business.
Here is a brief snapshot of some of John’s salient points:
- In the SME sector you can build a very successful business from scratch and find yourself at age 60 with no idea what to do next. One option, which a lot of people take, is to shut the doors. That has significant impact on the people left without a job, and often leaves an enormous amount of value on the table. John had a client who bought his father’s engineering business 40 years ago and is ready to get out, and none of his children want to be involved. The challenge is to build a professional team to run the business without him, so when it goes on the market it’s not dependent on the owner as the single source of value.
- One benefit of good succession planning is that you get to pocket a cheque for the business you have built. A second thing is you leave a legacy – you leave something behind that is thriving and is providing opportunities for people.
- SMEs typically lack a succession plan because people start businesses without any training in this area, even if they’ve grown to one hundred staff and millions in turnover. Owner-operators are usually so immersed in the day-to-day that succession planning is inconceivable.
- A key strategy is for owner-operators to work on their own mindset and figure out what they want from the exit process. Usually, they have already made money and the sale price is the cherry on top, so what is critically important is deciding what’s next in their life. For one of John’s clients, wanting to spend time with his children and grandchildren and travel with his wife are the better things that are allowing him to let go of the business. If you don’t get to that point, it will all turn to custard.
- Don’t rush planning and don’t leave it too late. The universal truth is you will exit your business, and much better that it’s on your own terms than on a stretcher. Start thinking about it as early as you can.
- The process of exiting a business is usually extremely emotional for business owners, and you need to manage feelings of fear and grief and all kinds of things. People need to be kind to themselves.
We know this conversation will strike a chord for many of our SME members whose founders, directors, or leaders may be thinking about the next stage of life. Preparation is everything, and it may help to think of exit and succession planning as another kind of innovation. John and I covered much more on this topic in our wide-ranging conversation: listen to the full podcast episode here https://www.hera.org.nz/stp-ep85-john-luxton/
Dr Troy Coyle brings more than 20 years’ experience in innovation management across a range of industries including materials science, medical radiation physics, biotechnology, sustainable building products, renewable energy and steel. She is a scientist with a PhD (University of NSW) with training in journalism and communications.