Passing it On: BAM Succession Planning and Exit Strategies

by David Skews

Editors Note: When we asked veteran BAM leaders to identify some of the pressing issues that are facing the business as mission movement in the next decade, among the issues they identified were several areas that could broadly be categorized as ‘resource gaps for BAM companies’, including:

1. Adequate financial capital flow.

2. Adequate human capital flow – both in terms of a) recruiting the right kind of people to begin and sustain a BAM company, and b) succession planning and the successful transition of a BAM company from one generation of owners to another.

3. Adequate support for BAM practitioners, especially mentoring, accountability and care.

We will be posting articles covering each of these issues during the month of June, continuing with the challenge of human capital flow, part b: succession planning.

BAM Succession Planning & Exit Strategies

In the beginning God created a BAM Business but when is it time to pass it on?

I can guess why I was asked to write something on exit strategies by the editorial team!

Having founded a business in the UK in the 1980s, I later realised how it might be used by God with the help of a BAM conference I attended in 2003. Scaling the business was tricky, opening offices in Singapore and then into Southeast Asia. We had a bumpy ride in the 2010s and I completed my exit strategy through the sale of the company – specifically, a management buyout (MBO) – in 2014.

I am currently engaged in advising over 100 BAM businesses on their journey from pre start-up to lean start-up, and now some scaling-up. I am currently working with a BAM business in Asia that is planning the succession of owners, along with a collaboration of two BAM companies as part of a medium-term exit plan. 

Weary Bones

Years ago, many young entrepreneurs started out with a big dream, they started small and they built deep. Part of that dream was that the local people would be developed to become strong managers and leaders who could take over the business, continuing the mission to proclaim the gospel of the Kingdom to the least reached. They hoped the next generation would bless the nations, climbing on the shoulders of the pioneers to evidence real transformation through impact on the four bottom lines of BAM (financial, social, environmental and spiritual). Alas, many business founders have found it difficult to equip and train local people over a short time frame and in challenging countries. Implementing an exit strategy then begins to feel much more complicated and likely takes longer than business owners may have originally imagined.

As the BAM movement matures, more and more business owners are opening discussions that start with statements like:

“We are getting older, our bones and souls are weary and we need to execute a successful exit strategy.”

Successful successions then become a critical topic as we look at the human resource flow in the BAM movement. Will a BAM business be able to find suitable new owners that have the vision, the skills and the experience to keep the company on track with its multifaceted goals?

With God’s Help

Firstly, may I encourage all those who are in this very scary but exciting time to be assured that with God’s help and a reliance on Him, He will make this possible.

When we start-up we discover how to submit our businesses to God and invite His presence into our boardrooms, just as when we surrendered to Jesus as we decided to allow him to rule in our lives. Now as we consider our exit strategy, it is critical that we kneel before the Lord and ask Him, “What Lord is (y)our strategy now?”

When I did this, I expected a loud voice in the earthquake or in the wind, or even a still small voice. I had always thought that I would sell my business when I reached 60 years old and then ride off to play golf, listen to Ravel and take my wife on amazing holidays! Actually, the truth was that when I started to pray I heard little, except that I had a deep peace that I would know what to do at the right time – and I did. I could take up all the remaining space in this blog to relay the story of how God led us through the process, the words of encouragement I received, the piercing scriptures from friends, etc. Suffice to say, from my own experience, I am confident that as one brings this strategy to the Lord, He will guide in a unique way.

The Process of Exiting a Business

When the time comes to consider the exit from the business – which incidentally should begin during the start-up phase (as Stephen Covey reminds us, we should ‘begin with the end in mind’) – there are so many options about how to achieve this and even more questions about the process.

Questions to ask include:

• How do I prepare the business for a transaction?
• How long will it take?
• How do I draft the memorandum?
• What financials will be needed?
• What do I show potential buyers in the due diligence process, drafting a non-disclosure agreement, etc.?
• Should I hire an expert to help me?
• How much can I sell for; how do we value the business?
• How can I sell to a management team that is not strong enough?
• How long is the process, when do I actually leave?
• What advice and counsel will I need?

By now you may start to feel overwhelmed – don’t be, God will have gone before you, don’t be dismayed.

So do not fear, for I am with you; do not be dismayed, for I am your God. I will strengthen you and help you; I will uphold you with my righteous right hand. – Isaiah 41:10

I now feel I want to launch into answering all the questions, but what I want to say first and foremost, is:

Before you start to execute your strategy pray and seek wise counsel and then pray again.

 

Practical Advice

Although this is not a complete list, here are a few basics, to be exercised prayerfully and with wisdom:

No one can correctly or accurately value a business; many clever people will say they can by using multiple formulas like 3 x EBITDA, the average of the last three years of profit with a multiplier, cash flow, a multiple of the balance sheet, etc.. These are useful indicators, but the price you will sell at will be the price a buyer is prepared to pay! You will need to know your preferred price (which you might keep to yourself, plus your partner and, of course, before the Lord) and your walk away price.

Preparing the business for a transaction is different than preparing it for income or impact. Ensure you can measure impact along all the four BAM bottom lines. It becomes important to pay down debt, value stock, get costs under control, work on the balance sheet, etc. You will need to know how to build value for the purchaser and you will need to do that over a period of time.

Ensure that you include all shareholders in the process.

Be prepared to stick around for a while, whether it’s a trade sale or a management buy-out. The business will need your gained marketplace wisdom, spiritual oversight and encouragement. Often in a smaller business much of the value will be in the knowledge of the founders. Your buyers will know that. You will need to negotiate a consultancy agreement with the sale and purchase agreement.

Expect to give warranties and to sign non-compete/non-solicitation agreements.

Be prepared to accept stage payments and the risk that goes with that, and be aware that it may be necessary to “prime” a buyer with a deferred payment structure.

Hire a negotiator, an accountant and a lawyer with experience. Don’t go for the cheap option or hire your best friend it will cost you dearly in the end, both financially and spiritually

Learn the acronyms: MBO’s IBO’s, LBO’s, BIMBO’s, etc.

An internal sale may be a good option if you want to hold the values and morals in the business.

Remember that God already has gone ahead and aligning to His plan will be key to the success of the transaction. It will be settled on your knees not in the boardroom. Gather your prayer partners and maintain sustained prayer as you go.

Please, get wise counsel, get wise counsel, get wise counsel! Lay it before the Lord and then make your own decision based on what you are hearing from the Lord.

Avoid sin and greed. Wayne Grudem reminds us in his fantastic book Business for the Glory of God that business, which is fundamentally good, provides us with many opportunities to glorify God, but also many temptations to sin.

Be alert and put on the FULL armour of God, you have an enemy who wants to kill your deal. Then, just stand firm (Eph.6:10).

I’ll leave you with a quote from William Carey, as he exhorted his generation to take up the missionary task, to match the fervour with which the trading companies of the day were going to Asia for purely commercial gain, “we must plan and plod as well as pray”… “and then we must pay, otherwise the children of light will be shamed by the children of this generation.”

This post is part of a series of blogs in June 2019 looking at resource gaps in the BAM ecosystem that we must address for the next decade of business as mission to be more fruitful.

The BAM 2.0 Series

In recent months we have been exploring each of the key issues highlighted in our introduction post on 10 pressing issues to address for BAM 2.0.

In March we continued with our introduction to the series, looking at how far we’ve come and some of our ‘big hairy audacious goals’ for the future.

In April we took a deep dive into our ‘Why’ – what are some of the pressing global issues that BAM can address, including poverty, unreached peoples, the refugee crisis and human trafficking.

In May we looked at some limiting issues such as the sacred-secular divide, our definition of success, our geographical depth and our connectedness; issues that we must overcome for future growth.

In June we’ll look at resource gaps to overcome, including human capital, financial capital, mentoring and support, prayer and continuity planning.

We hope you enjoy this series! Follow us by subscribing to The BAM Review email or on Facebook, Twitter or Instagram.

David Skews is a businessperson called to mission. In 1989, he established EDP Health Safety & Environment Consultants Ltd performing the role of CEO as he led EDP through sustained growth for over 25 years in both the UK and Asia. In 2004 he fully engaged in business as mission, as well as continuing to lead his business. Since then, David has focused his efforts into training entrepreneurs in Asia and Africa, and speaking internationally on business for good. He has also helped lead a mission agency through the process of embracing missional business. Today, he advises numerous companies, acts as a non-exec director for six successful BAM businesses and is part of the Advisory Board for BAM Global. David transitioned out of his business in 2015 and into new BAM fields! David is married to Lesley and is based in the UK.

 

Photo by Cytonn Photography on Unsplash