A SUCCESSION plan should form part of every business owner's strategy. By making it a priority, business owners are more likely to be in a position where they can maximise their return when they decide to exit the company.

Early planning is essential to get the business into the best shape possible.

Succession can take many forms. It could be a transfer to the next generation of the family, a disposal of the company to management, a buy-in team or venture capitalist, or a simple sale to a third party buyer.

Management buy-outs are returning as a strong option at the moment. If a business has an experienced management team it not only means that the value of the business will be stabilised rather than devalued with the owner’s exit, but also that the team could put in place a successful management buyout.

MBOs see management teams taking full ownership of a firm, using their expertise to grow the business. The MBO process reduces risk because the continuity of the business is better assured when the people who have managed it and know it well are its buyers.

Existing clients and business partners are also usually reassured because of the improved prospects for a solid return on investment.

Funding for an MBO can come from a mix of personal resources, external financiers and the seller. The MBO process remains confidential throughout, and although it usually takes between six and 12 months to complete, the transaction can go through quickly when necessary.

The full transfer of ownership to successors can be implemented as a staged acquisition, over months or even years.

It is important for the business owner and the MBO team to have professional advisers to review the funding assessment, prepare a sound financial business plan and conduct due diligence. Advisers can also help to project manage the deal process which improves the chances of a successful MBO significantly.

By setting objectives now – such as the preferred year of exit or level of profitability – business owners can begin considering the current and potential value of the company well before a planned exit.

:: Carl Swansbury is director of corporate finance at Ryecroft Glenton Corporate Finance, Newcastle.