Equipping your firm for the future
As a partner or director of your architecture practice, ensuring the future of your firm in terms of long-term continuation is paramount. Whether this means you continuing at the helm or handing over the reins, it needs planning and attention.
Succession planning is often overlooked and it is possibly too late to realise what a huge impact succession issues can have on your business and clients. Whether your practice is new or established, it is imperative to implement succession plans that will help protect and secure the firm’s future success. Burying your head in the sand is simply not an option!
To future-proof your business it is essential that you start planning for any changes well in advance. Whilst you may have a general idea of when your partners and key members of staff are looking to retire, it is difficult to plan for unfortunate circumstances where someone can no longer work due to serious illness. To ensure success, it’s important to have planned for all eventualities by having clear contingency plans in place.
Effective succession planning will also allow you to assess and improve on any issues with your current management structure. Some management roles may become obsolete in the future, perhaps through the development in the latest technology. For example, the development of Building Information Modelling software (BIM), project management and CRM systems could eventually reduce headcount. Other roles may increase in importance, so you need to know what skills and competencies your architecture practice needs to succeed.
In contemplating succession one consideration is selling equity, where partners elect to take a cash sum on retiring after years of building up the business. However, to fund the purchase any existing or new partners or directors may be concerned with the risk of the increased cash outflows. One solution to this is to set up an employee ownership trust, a topic covered in our upcoming article.
Another strategy may be selling or merging the business, with existing principals remaining as part of the new firm. Depending on the terms of a sale, it does provide an option for retiring principals to receive some cash on retiring. There will undoubtedly be some earn-outs attached to any sale for existing partners and directors and these terms will need to be negotiated carefully. In advance of any thoughts of sale or merger making your practice an attractive proposition for any potential transition is key and you will need to ensure the practice is setup to succeed without the input of any retiring principals.
In succession planning, one of the main things to consider when partners retire is having open and honest conversations with those involved. While some may wish to completely stop working, others will prefer to wind down slowly – although be careful of some potential tax consequences here.
Talking to your partners/directors early on will enable you to put together an effective succession plan. This ensures that client knowledge, relationships and experience are passed on to successors before they leave. You are more likely to retain clients when a partner retires if they are already comfortable working with the successor.
Having a succession plan will also give your employees confidence and a sense of security. When you have engaged employees, you benefit from improved productivity and retention, thus enhancing the value of your business.
Getting your succession planning right is fundamental to future-proofing your architecture practice. Planning well in advance of the event has been proven to be far more effective and allows for unforeseen issues which crop up in the journey to be managed and overcome without knee jerk short term reactions. Ultimately planning will optimise the overall result.