By Michelle Geraghty, Business Development Head, FNB Business Advisory and Louis Weitz, Channel Head at FNB Financial Advisory
While the primary reason anyone establishes or enters a business of any sort is ultimately to make money, there’s far more to sustainable business success than simply generating revenue from month to month. Of course, cash flow, profitability and growth are all vital success components for any business – whether it’s a retail shop, a factory, an import/export operation or a farm – but what few business owners realise is that it’s not enough to work in the business, you also need to work on it. And that’s especially true if you want to build a business that can stand as a valuable legacy for your future generations.
To achieve this legacy as a business owner, or simply ensure that your business supports your retirement aspirations, it’s vitally important to consider what the ultimate goal is for your business. Given the passion and hard work that goes into establishing and growing any successful business, it’s unlikely that you simply want your business to cease to exist when you retire one day, or if you should pass away. But while most business owners want their company, organisation or farm to continue well into the future, few actually think about how that future needs to look when they are no longer at the helm. And that’s why FNB’s concept of a Business Will is so valuable.
Unlike a personal Will, a Business Will is not a physical testamentary document, it’s a way of thinking about what you need to be doing in your business today to ensure that it achieves the tomorrow you desire, for yourself, your family and the business itself. While there are many steps involved in this Business Will process, it essentially boils down to the following three main components:
- Understanding the risks to your business when you exit
While there are legal structures and requirements in place to ensure an arm’s length relationship between business owners and their business entities, the simple truth is that you can never fully separate the individual from the business he or she owns. This poses potentially significant risks to the business when you reach the stage of removing yourself from it. There are many such risks that you need to be aware of, from changes to the established way of working, to shifts in relationships with suppliers, business partners and even trusts, settlement of inter-company loans, freezing of bank accounts (in the event of your death), once-off and ongoing costs of financial support, and many more. A well-structured Business Will process includes a comprehensive governance health check and an analysis of all the risks associated with the eventual departure of an owner or director from a business, and FNB Business Advisory supports this analysis with best practice advice on how to manage and mitigate those risks.
- Planning for the future growth and value of your business
The success of any exit strategy is inextricably linked to the value of the business at the time that exist strategy is executed. That means, the more valuable the business is as the point you exit it, the more value you will be able to extract from it to support yourself for the remainder of your life. As a business owner, recognising this link between the future value of the business and the financial benefits accessible on departure can be very motivating. For this reason, FNB’s Business Will process includes a deep dive into how a business owner can leverage the full suite of FNB business solutions to maximise growth and exponentially build value ahead of the owner’s exit.
- Developing a clear strategy for exiting the business
It may seem counter-intuitive to think about how you eventually want to end your relationship with your business when you’re either just starting up or you’re still in the process of growing it, but it is vitally important that you have a clear exit strategy and succession plan in place well before the time arrives when you need to execute it. Obviously, there are many exit options available to business owners, and these differ according to business types and owner preferences, but irrespective of how you plan on dealing with your business when you’re ready to leave (or when you depart unexpectedly), what matters is that you have that plan in place now. That way, if you intend leaving the business to someone else, you can be sure that they actually want it; and if you’re planning on selling part or all of the business to fund your retirement, you can make sure that it’s as appealing and viable to investors as possible.
Importantly, taking the time to conduct this kind of Business Will process is not just a way of ensuring you have a viable succession plan in place, it’s also a worthwhile investment into good governance – which ultimately lies at the heart of any sustainable and successful business, irrespective of its size or the nature of its operations. Getting your proverbial business ‘ducks in a row’ in this way can also be invaluable in terms of enhancing the appeal of your business to prospective clients, partners, investors and financial institutions; and it makes the tendering and due diligence processes that form part of so many business dealings these days significantly less painful for all involved. FNB even has mechanisms and partnerships in place to facilitate private equity investment that achieves vital BEE compliance now, and eventually enables a staggered exit for the owner.
But arguably the most valuable outcome of undertaking a Business Will process, in whatever format you choose to conduct it, is that is creates absolute clarity regarding the vision you have for both the immediate- and distant future of your business. And such clarity of vision is what ultimately lies at the heart of sustainable business success.
