Claire Watkins at Buzzacott explores whether there is a right time to start thinking about succession and when it might be too late.
Many of the practices Buzzacott work with started off small, often as the result of a break-out from a much larger firm, and took a while to establish themselves in the marketplace. After a few years, though, there can be quite a clear turning point when the initial investment has been paid off, cash flows stabilise and excess profits are ploughed back into the business to finance future growth. At this point, it is a good time to start thinking about succession.
At the other end of the timeline, a great many long-established firms do not consider soon enough how the founders will finance their exits. In conversation with a director of Firm A on the subject of acquiring a much smaller Firm B, Firm B had received several approaches to merge but had resisted them all because they believed the offers were too low. Roll forward ten years and ready to retire with no successors from within their own firm, it quickly became apparent that if the founding partners of Firm B wanted to be able to walk away with their capital investment, they would have to go to Firm A and find out whether there was still an appetite to merge.
The director of Firm A first words were, “we know they’re dead in the water if they don’t accept our offer”. Unsurprisingly the offer Firm A made was extremely low. Perhaps Firm B was right, ten years ago, not to merge with Firm A; merging is certainly not a panacea. It becomes necessary, then, to consider other ways to facilitate succession.
The most common succession plan is one in which home-grown talent rises up through the ranks and takes over the business as the founding partners retire. For this method to work smoothly talent must be nurtured early on and investment put into training future leaders. Having regular conversations with the brightest and most hard-working managers and associates should identify their career aspirations which the firm can help them to achieve.
Sharing information with the middle management tier is strongly encouraged. From a financial perspective, sharing business plans, monthly management accounts, budgets, cash flow forecasts, billing targets and cash collection targets are all essential reports future business leaders should know about. Setting objectives for key staff members such as winning a certain number of new clients or improving project efficiency are all part of the coaching process and should be linked to bonuses or promotions.
Beyond operational matters, discussing with key staff members the firm’s strategy and inviting them to share their own ideas can encourage everyone to work towards the same goal: to equip future leaders to continue the firm’s legacy.
