Succession planning makes all the difference when selling your business - Finlay Swan

Increasingly, younger generations have no desire to follow in their parents’ footsteps and take on the family business. Young people have a whole variety of career choices, such as jobs in technology and new media, and easier access to education. As a result, founders cannot rely on children to take the reins. With no obvious successor, baby boomers often consider themselves too busy running their business and don’t give the issue much thought until they want to retire.

A prime example of this can be seen in the pharmacy industry in Scotland. Thirty years ago, a large proportion of Scottish pharmacies were founded and run by baby boomers. Increasingly, these are being bought by private equity and larger conglomerates looking for companies where retirement looms. The outcome is a real consolidation of the market.

The appeal of baby boomer businesses is readily apparent: brand recognition, steady cash-flow, market knowledge combined with typically strong supplier/client relationships.

From the seller’s point of view, however, there are a number of issues to bear in mind, especially if the best price is to be achieved so the individual can live comfortably off the proceeds.

I deal regularly with baby boomers commonly selling pharmacies, dentists, opticians, manufacturing and engineering firms. Part of my job is to ensure smooth handovers to buyers.

Sellers, and long-serving staff members, know the business inside out but this wealth of knowledge has to be documented. All contracts, internal processes, employment procedures and record-keeping mechanisms have to be reviewed. They must be organised, accessible and comprehensive, all of which streamlines the sale process massively.

A crucial part of a successful transition is the creation of a contract that legally protects the seller. In the haste to get a business off your hands, it’s easy to be railroaded and omit terms which protect any warranty and indemnity claims after the sale.

Whilst everyone wants to get the best deal for their business, for some this isn’t necessarily the same as achieving the highest price. A desire to preserve a legacy can make sellers more discerning in choosing a buyer.

Employee share incentive plans where employees gradually become the owners are becoming increasingly popular, partly because the seller knows the staff. There are also tax benefits involved.

Brokers can be helpful too when it comes to finding buyers given their vast network and market knowledge.

There is undoubtedly time, careful thought and expertise involved in the sale of a business but proper succession planning can make all the difference. At the end of the day, sellers deserve to enjoy the fruits of their lifelong labour.

Finlay Swan is a Senior Solicitor, Holmes Mackillop