Biggest challenge is valuation as in a downturn the value of the business goes down
The main challenge is valuation, because in a downturn the value of the business goes down.
This can be difficult, as the price expectation of the departing executive will have to adjust.
A business that was worth £20m might now only be worth £10m. It can almost feel like the guys taking over are trying to take you for a ride when actually, they are just offering what they can afford.
Be aware of the differences between handing over certain types of business.
With a consultancy like Tuffin Ferraby Taylor, the value is tied up in the individuals.
That means there is always a risk that relationships and contacts that have been built up over years will wane once the original management has left, so these must be passed on beforehand.
Some departing managers offer to stay on to keep an eye on things – for example, by doing consultancy work. But human nature can get in the way and when it’s a lovely day and the golf course is beckoning, the reality is that they may not be around for as long as they said.
The management team taking over should be aware that this is a possibility and be able to cope on their own if needs be.
The new guys have to be fully aware of what it will mean when they formally take over. They may have been practically running it for months, but it’s not the same as having sole responsibility.
The good thing about a recession is that it forces people to manage risks better and so taking on a new business in this climate will mean fewer people go into it unprepared.
David McCorquodale is a partner in KPMG.