Business Continuity -- It's Important

Business Continuity
Most small businesses have succeeded due to the hard work, personality and drive of the founder of the business. The entrepreneur who succeeds in setting up, running and maintaining a thriving business of their own knows that transitions occur and plans for them. I am often amazed that business owners and entrepreneurs thrive in times of change and yet many fail to plan for the time in life when the reins of their business need to be handed over to the next generation.

Business continuity planning is often overlooked.

The need for a well formulated exit strategy is highlighted by the fact that most business owner’s capital is tied up in their business. Retirement planning becomes difficult as the release of this capital may be essential for retirement purposes.

In addition there are a number of other issues that have to be considered in succession and business continuity planning.

• Are the right people in place that share in the goals and vision of the business?
  Most small businesses are family owned, with some members contributing to the business. These have their own particular share of problems in that some families work together better than others. However, when it comes to trust, most families say they trust each other because of that bond called “family”. This emotional bond is vital within any family and although succession planning needs to be as unemotional as possible, it needs to be thought through and discussed with the needs and direction of the business coming before emotional bonds. Succession planning needs to be communicated between all family members so that a complete understanding is reached as to the direction of the business. Many small companies have recruited competent, reliable and capable staff members as part of their management team. They may be more capable than a family member when it comes to running a profitable enterprise.
• Timing of the exit strategy
  By far the most rewarding process is to be part of the change management; when chosen people are allowed to grow the business. This may occur where management is handed over but control of business is still held by the owner. If responsibility for the business is not slowly transferred, how can the owner expect the new management team to succeed after his death? Many individuals enjoy the business environment and only wish to transfer ownership on death. There are problems associated with this decision that relate to estate duty, family dynamics, liquidity within the estate and business continuity.
• How does one value a business for succession purposes?
  As has been seen with the recent market volatility, a fair market value of a business can change daily. However, a fair market valuation is essential in settling the assets of a business. There are various models used to calculate a fair valuation of an entity, but unless the entity is listed, it may be subjective.
• Dealing with perceptions of bias
  Whichever way the exit strategy is managed, there are always going to be perceptions of bias. For example, if only one family member is capable of taking over the running of the business, should they receive the same share holding as other family members?
• The role of an auditor or experienced certified financial planner
  The auditor or financial planner’s role would be to facilitate and assist with the integrity of the succession process. They would also assist with the valuation and facilitating the funding of the process. They would ensure that adequate protection exists for you, your family and your business needs. They would liaise with the attorneys and accountants to ensure that a well structured buy and sell agreement is in place.

Engage a financial planner who is focused on your best interests when planning for business continuity in your exit strategy. If you do not have a financial planner visit www.fpi.co.za to find a qualified certified financial planner.

Debbie Netto-Jonker, CFP and her business partner Ian Beere, CA (SA) CFP were financial planners of the year in 2001 and 2007 respectively.