The Covid-19 pandemic gave many business owners the time and space to have often difficult conversations about their company’s long-term strategic outlook.
"The pandemic accelerated those discussions," says Emer O'Riordan partner, audit and business advisory, Mazars. "Business owners questioned what would happen if they were no longer around or if they got sick. They asked themselves if they wanted to continue in the business and what the future might hold.
“There can be a lot of emotion in those conversations, and people often don’t want to have them.”
In many cases, that led to long-term decisions regarding the potential sale of the business or how it will be passed on to the next generation.
Such decisions require owners to separate their roles as owners and managers, according to O’Riordan, and ask themselves questions like “How can I prepare myself to be a great future owner of this business?”.
They may need to develop their leadership skills and prepare and structure the business to lead with purpose to protect long-term shareholder value and build a better future for generations to come.
“The culture of a privately-owned business often reflects the founding entrepreneur’s passion and vision and the way they lead the business,” she notes. “How they treat their customers, their colleagues, the standards to which they hold themselves to account. Their values are fundamental to the culture.
"Family businesses see themselves as part of the fabric of the community. They are not just there for short-term profit. But at a certain stage, they need to divide the roles of owner and manager. A good owner has a different skillset from a good manager.
“As time goes on, owners may need to trust an executive team to manage the business. Being a good owner means being able to communicate a vision and strategic plan so that the management team can execute it with confidence and clarity.”
In due course, it means establishing a board to develop the plan.
“It is worth looking at the make-up of the board and how it makes decisions and communicates them, and in turn monitors progress,” O’Riordan adds. “How clear is the board in its communications with the executive management team?
“The board must offer the competencies and the support to set the direction for the business. Non-executive directors can bring a wealth of experience. They can introduce new business and networks, share sectoral knowledge and bring a fresh perspective.”
Boards can also be supported by external advisers who can facilitate the formulation of strategic plans, she adds. “Advisers can facilitate discussions and set out a structured way to develop strategic plans.”
“Entrepreneurs tend to have wide networks to whom they can reach out for support and to share experiences and lessons learnt. Owners who have gone through situations before and lived through the process are generous in helping others navigate avoidable mistakes.”
The strategic plan, once developed, cannot be set in stone. “It should be a living document,” says O’Riordan. “It is a critically important tool for communication between the board and the executive management team. It sets out the strategic vision, with areas of focus broken down into targets and objectives over a three-, five- or seven-year period. It must continually adapt as conditions change, and new opportunities arise. It must evolve as time goes on.”
And that leads naturally to those conversations about the future of the business.
“There may be a requirement for external investment to fund growth or buy out a family member. The family may want to take some money off the table by bringing in external investment. The business’s ownership structure will alter fundamentally in both situations, and you must plan for that. It can’t be done in a short timeframe.”
Tax planning and the incentivisation of key management also needs to be taken into account. “Changes in group and share structures may take years to implement fully, which emphasises the point that early engagement in planning for the future is vital to give these important matters the time to be fully informed and considered.”
The conversations may open new vistas as well. “Sometimes they can lead to massive opportunities,” she notes. “An owner in a leadership role may decide to move into a non-core part of the business to develop it further. You have to address everyone’s fears and expectations during the process, and putting a strong shareholder agreement or family charter in place can be very helpful for the future governance of the business.”
And that structure will allow the board to lead with purpose. “That’s something that entrepreneurs are good at. Their passion feeds into that purpose and the governance structure allows that purpose to carry on.”