Small business owners in Wales are putting their finances at risk and dicing with the health of the firm they have nurtured, by making poor arrangements – or no arrangements at all – for the smooth sale of their business.
Emma del Torto, Founder of Cardiff-based HR and employment law specialists, Effective HRM, has issued the warning ahead of an inaugural business breakfast in Swansea, in November, on the subject of exit planning, organised by Swansea Accountants, Morgan Hemp, HR specialists Effective HRM and sponsored by HSBC Bank PLC.
With 99 percent of businesses in Wales being SMEs, Emma says she sees a number of cases each year of managing directors of companies that have been ‘grown from seed’ to become successful, profitable and highly regarded, undermining their achievements when it comes to selling the business on, because of lack of detailed thought into exiting the business.
“According to latest figures there are an estimated 200,000 SMEs in Wales underpinning our economy, employing an estimated 1 million people.
“The value of SMEs to the economy cannot be overestimated and there is an impressive amount of entrepreneurship in this country.
“But lack of exit planning is an increasingly common flaw among SMEs and it can be fatal to the business.
“A common scenario sees, for instance, the MD of a company who has been at the helm for some decades, knows all the ropes and the quirks within the company’s processes and systems – in its inventory or records for instance.
“He or she has a two-fold problem – they will already find it difficult emotionally to hand over the reins and they will be further hampered by the fact that those quirks have not been ironed out.
Emma continues: “Things like Transfer of Undertaking Protection of Employment (TUPE), which protect the rights of your employees, and any shareholder issues, or legal, accounting or environmental issues, need to be settled long before you come to sell your business.
“I would strongly advise company owners to follow the example of start up tech firms or app entrepreneurs.
“People who start up tech companies often do so with a very particular end goal in mind – to identify or create a demand for their product, to meet this demand – whether this is an app or a social media tool or platform – to make a great success of the product quickly, and to sell it on in a short space of time.
“You can be sure they put their exit planning in place around the same time as they drafted their initial business plan.
“This approach isn’t just a savvy one for young, hip tech geeks! It is an effective way of managing your business well.
“Neglecting to plan for exit can put your retirement hopes – not to mention your nest egg – at risk. It can lead to real uncertainty and in the worst case scenario it can lead to job losses for staff you probably have a long-term relationship with.
“A period of chaos or power struggles, or a protracted handover, can greatly undervalue your business, making that final sale, if it goes ahead, disappointing.
“A complex sale can have a negative effect upon your clients and your customer base too, further undermining the business you might have invested decades of your life into.
“Successful business owners put much effort into putting in place policies and procedures, plans and forecasts to give their businesses sound foundations for growth and success.
“Succession planning should be a natural extension to this process – something you should settle in the early years of your business, updating the fine detail each year.
“When it comes to selling your business on, it is the business equivalent of having the smell of freshly baked bread wafting through the kitchen when your potential buyer rings the doorbell, or brewing fresh coffee.
“It can make the difference between a successful and lucrative sale, or a potential buyer hurrying out the door without a backward glance.”