Creating a Successful Succession Plan

Julie Palmer

Regional Managing Partner

3 Minutes to read

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Creating a Successful Succession Plan

Updated: 20th May 2020

Is Your Succession Plan a Plan for Success?

Developing an effective succession plan takes time, and needs careful consideration. It’s probably taken years of hard work to build up the business so you want to make sure you extract as much of the value as possible.

Selling may be an option – perhaps to a third party or the existing management team, but there are other exit strategies that might be a better fit depending on your circumstances at the time.

If there’s nobody to take over when you step down, for example, a form of voluntary liquidation could provide the answer. But let’s look first at your options for sale, and the various ways you could incorporate selling the business into your succession plan.

Management Buy Out (MBO)

If you’ve developed a strong management team with succession in mind, a Management Buy Out would facilitate the purchase of your company by the existing team members. MBOs offer a smooth transition when the time comes to make your exit, as the management team already understands the business and its place in the market.

Management Buy In (MBI)

A Management Buy In involves an entirely new management team purchasing and taking control of the business. The introduction of new ideas and a fresh perspective can be valuable in this scenario, although a lack of prior knowledge of the business is sometimes seen as a drawback.

Buy In Management Buy Out (BIMBO)

If you feel the options above offer benefits, but significant drawbacks also exist, a combination of the two processes could be the most suitable solution. A Buy In Management Buy Out (BIMBO) involves some or all of the existing management team remaining in place, and being supplemented by one or more new members - perhaps with specialist skills that aren’t already present within the team.

"Developing an effective succession plan takes time, and needs careful consideration."

Acquisition by a larger company

Strong and stable businesses with talented management teams are an attractive proposition for larger enterprises looking to expand, so acquisition by a larger company could be a solid option for you. But what happens if your business is too small for sale, or there’s nobody suitable to take over when you leave? What are your options for closing down the business?

Members’ Voluntary Liquidation (MVL)

When your business is too small to be sold, or there’s nobody suitable to take over when you leave, a Members’ Voluntary Liquidation may be useful to extract some of the value and close it down in an orderly manner.

The process involves realising your business assets and distributing the funds among shareholders, once all your creditors have been repaid. One drawback of an MVL is that you only receive market value for the assets, with no return on intangible assets such as goodwill, or the business relationships you’ve built over the years.

Train and develop key members of staff

It’s important to identify any key members of staff or family members who may be interested and capable of taking over when you step down. Again, training and development take time, so this is something you should think about well in advance.

A succession plan isn’t a static document – it should be a written representation of a fluid strategy that’s flexible enough to cover variations in an expected situation. RBR Advisory can help you plan and develop a succession strategy that’s effective and stands the best chance of producing the return you’re looking for.

Our partner-led team has extensive experience of advising business owners in all industries on their exit strategy, and will arrange a same-day consultation free-of-charge – we work from a broad network of offices around the UK.