How to give up your business and retire

I started this company in 1991 at the age of 37 with Dh10,000 and only two employees. Today I have 53 staff with an annual turnover of Dh220 million. Now I am 58. In a few years, I should be able to retire comfortably."

You have heard success stories like this one. Or perhaps that success story is your own.

You have worked hard to build a business, you deserve to retire and enjoy the fruits. But whether you plan to hand over to your own children or sell out to strangers, there is more to be done than deciding.

Smooth and orderly succession is a long process. Few people realise that it needs to start years before you retire. Typically, founders find it very hard to even delegate, let alone hand over to someone else.

Early planning: Succession planning must start three to five years in advance. You will do a great disservice to the company, yourself and your successor if you leave this to the last minute.

Planning begins with identifying one or more successor, a critical task especially when the successor is to be from outside the family. Do not assume that the person you choose, even your own child, will be willing.

Reluctant successors are not good for the company. Once identified, it is necessary to have a very direct talk with them, fairly early. You need to ask:

Once satisfied about the commitment and ability, you mutually fix the date by which succession will be complete.

Training and grooming: It is your responsibility to coach your successor to take over competently. Identify the gaps in his knowledge and experience, and work towards improvement in those areas.

Coaching will transfer years of your experience in a compressed form. If you are personally not a good teacher, identify one or more senior colleagues who are.

Delegation: Starting with minor aspects of your job, increase the level of delegation until your successor is independently handling most of your responsibilities. Now, you enter the final stage of a parallel run, much like when you implement new IT systems.

This is the phase where you are still present, but take a back seat, an observer's role. A satisfactory parallel run will convince you that the time is right for you to hand over the reins and retire gracefully.

This is, of course, the ideal version. What if there is no successor?

Here, owners can consider pro and cons of equity dilution i.e., partial sale, or even a total sell-out. The buyer may be your staff and management or external investors. Dilution to private equity funds is also an option.

Preparing for sale: Selling requires another kind of planning altogether. Now you are not grooming a person but grooming the firm itself to be attractive to a buyer. A buyer will invest only if assured that the company will run smoothly even after the promoter exits. The ‘key-man risk' is a big deterrent to potential buyers.

Instead they will look for good systems, processes and controls in place. You will soon see why it takes several years to make sure your firm can stand ruthless scrutiny and command a good price.

Finally, a very important aspect of succession is communication. You need to share the succession process to avoid speculation. A transparent succession will prepare everyone for change and enable smooth transition.

So, whether you hand over to a family member, professionals or an external buyer, smooth and profitable succession needs lead time and detailed planning.

The writer is the managing director of Salvus Strategic Advisors.