Replacing the founder and the inspiration behind a business is always tough for entrepreneurial companies, and unexpected deaths often bring firms to their knees. However, there are ways of making sure that your business survives even if you don't. Gareth Chadwick reports.

It is the most difficult moment that an owner-managed business has to face – the realisation that the person who built the company from scratch no longer has the desire, patience or skills to run it. But the process of bringing in new leadership to take over poses huge risks. Get it wrong and, not only does the owner-manager walk away into the sunset, the business goes with him. Get it right, though, and the fresh breath of new perspectives, new ideas and new energy can help the business achieve heights of success only dreamed of under the previous management.

There are four main options that will enable owner-managers to spend more time on the putting green and less time in the boardroom: a trade sale; leaving it to someone in the family; selling it to management; or an orderly winding down. Whichever route is chosen, the key to any successful change management is in the timing. If putting a strategy in place is something that only happens in the weeks immediately prior to the boss’s departure, the chances are that it will already be too late. The ideal time to plan a change in ownership should be measured in years, not weeks.

“I’d say that once you hit 50, you should be putting a plan together maximise the value of the businesses. It is not something that you can do overnight. You need to make sure all the formal commercial framework is in place, that the management team is in place and that the business is solid enough to survive without you. That’s what gives it its value,” says John Gilibrand, corporate finance partner at Unity accountants in Bolton.

Identifying a capable successor, or team of successors, and training and developing them to take over needs to be done objectively, unhindered by personal or social bias. The number two may have done his job acceptably for ten years, but it doesn’t give him any rights over the top job. Alternatively, bringing in new management with a view to them taking over is not something that can be rushed.

Stuart Dawson, managing director of Shades Screen Print, spent two years at the company before leading a management buy-out in mid-2004. Shades Screen Print is based in Reddish. It is a major European supplier of printed flat glass and plastics. Founded in 1976, it employs 70 people and turns over around £1.5 million a year. Dawson first joined as a consultant in 2002 to help founder and managing director Barbara Webb overhaul the company’s marketing strategy. He envisaged spending a few days a week on it for a few months, before moving on to his next consultancy project. It was only when he started the work that he realised Webb was actually looking to sell.

Sensibly, Dawson says, he did not rush into a decision about buying the business. He preferred to spend more time getting to know the company, bringing some of its organisational procedures up to date and introducing more modern commercial practices. In effect, he says that it was a slow-burn process that led up to the start of MBO discussions in earnest in the winter of 2003.

“We shared an office and we chatted as we were working, really. But it came to the point where I thought I didn’t want to be number two for ever. I was getting a bit bored and could see things that I wanted to change but couldn’t. So I raised the MBO question and Barbara agreed,” says Dawson.

MBOs are one of the most successful ways of bringing in new business ownership. The existing management will already have a relationship with the owner, which usually creates more comfort and certainty on both sides. By contrast, in management buy-ins, where an external management team takes over the business, there is not the same level of understanding or trust between either the exiting owner and the new management team or the existing employees and their new bosses.

“I have seen some horrendous MBIs”, says Gilibrand. “The owner of one north west business, which turned over about £7 million, was looking to sell it. We put a deal together for an MBO team, got funding, and everything was proceeding nicely. When we got to the offer stage, though, an MBI candidate put in a slightly better bid. The owner went with the MBI and within 12 months the business went bust. All the management basically walked out and set up their own company because they couldn’t stand working for the new owners.”

That sorry tale highlights one of the key lessons for successfully managing any significant business change – communication. Bill Leslie, managing director of UK Point of Sale in Heaton Mersey, has long had his son Jason and daughter Debra working alongside him in the senior management team, together with around 27 other employees in the company. He says that the plan has always been for Jason to take over the business and he is largely in day-today control already. But Leslie was determined to minimise uncertainty across the company.

UK Point of Sale is a manufacturer and distributor of point-of-sale products such as poster holders, product displays, wall mounts, shelf edge displays and price ticket holders. Leslie founded the business 17 years ago. He started planning for the handover to Jason five years ago, getting formal advice from lawyers and accountants and implementing the necessary structures and procedures.

Now, he says, everything is in place for Jason to formally take over in the next 12 months.

“We’d always assumed he would but we’d never really talked about it. As time went on, though, I recognised that the succession issue needed to be specifically addressed. We had to put in a proper timetable and the mechanisms for achieving it. I never realised how formal and official everything had to be. Sometimes I’d think ‘why am I bothering?’ But now it is all in place I can see it was the right thing to do,” says Leslie.

Leslie went out of his way to keep the management team appraised of his plans and the eventual handover to his son. As the plans progressed he made sure the whole workforce was informed.

Dawson, too, made staff communication and motivation one of his priorities when he took over at Shades Screen Print. The benefits, reasons and implications of the strategy need to be clearly communicated to them.

There’s a balance to be struck, says Dawson, between releasing too much information too early, which can often cause uncertainty and even jeopardise the deal, and giving management enough information to keep them committed. Equally, maintaining staff morale and support after the changeover can be the difference between success and failure.

Says Dawson: “The business is only successful because of the people who work here, so it is important to keep them motivated. I gave share options to all the senior managers and substantially increased the annual bonus after I took over.

“But there’s a selfish aspect too,” he adds. “I want to make my life as easy as possible; the more the staff are motivated, the better they work, the easier it makes my life.”

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