Clive Lewis, Accountancy Age, Thursday 19 August 2010 at 00:15:00

Stepping down from a practice can be just as tricky as establishing one. Sohow do you make the transition as smooth as possible, both for you and for yoursuccessors


The recession has forced many businesses to cut costs, refocus on coremarkets and to maximise efficiency. As a result they are lean and mean ? andready for the upturn.

This process is similar to the grooming that many retiring business ownersput their business through prior to a sale. For those who have had enough andwant to sell, they need to think about their options, weigh up the alternativesand plan their exit well in advance.

Many business owners are great at building a business but have no idea abouthanding it on.

There is a bewildering array of options. Each has its challenges and, unlessyou?re closing your business down, you need to plan carefully for the transitionto a new management team.

This process could start as much as 15 years before the business ownerintends to step down. The succession plan should be communicated to themanagement team as well as any family involved in the business to help preventmisunderstandings and possible future conflict.

It?s useful to have a written succession plan, which should contain the keygoals, a timetable of the transition and contingency plans in case the intendedsuccessor declines the role or you realise they are not suitable.

The plan should cover how the successor is to be introduced and trained. Thiscould be a mixture of on-the-job and more formal training. It should alsoinclude time for the development of business and leadership skills.

It may include gaining experience in other businesses so they can bring freshskills and ideas to the business. It could also be a structured programme withinyour business so they spend time working in each area of the business.

One major consideration is how to phase your departure. This can be achievedby gradually transferring some key responsibilities to your successor or byreducing the number of days you work in the business.

Many business owners have very little idea of the value of their business.There is a ready market in accountancy practices and selling prices arereasonably predictable based upon a formula linked to gross recurring fees.

However, if the business is in a niche market or heavily identified with thecurrent owner, establishing a realistic price might be difficult, especiallyduring the economic climate at the moment.

Owners generally overestimate the value of their firm at, say, six or seventimes net profit, while buyers tended to aim for two or three times net profit(plus asset value).

The latter is the most likely actual final price for the sale of a viablebusiness. However, businesses with unique assets and intellectual property ? oron the leading edge in an under-exploited area ? could command far higherselling prices.

Businesses in unopposed or less competitive markets, with a niche position orunique assets, are more likely to be sold successfully.

In some business sales, the owner of the firm remains for some timepost-transfer to ease the transition. This is a more common scenario than thepurchaser working in the business pre-transfer and mostly applies to specialistniche businesses rather than straightforward, generic firms.

Despite making it through the recession, many will take this opportunity toreassess both their business and their work/life balance overall. Carefulplanning will help ensure that you get the sale and handover that you want sothat you can relax in the next stage of your ?career?.

Clive Lewis is head of enterprise at the ICAEW