The first time I was ever offered a path to directorship in Architecture, I was only 25 years old.
And at that time, I was totally ready to take on big projects and most aspects of business – but I was entirely unready to have the next 45 years of my life tethered to a single place.
Unfortunately at the time, I was also secretly battling an undiagnosed health condition that then sent the next 15 years of my life spiralling away from Architecture, and eventually into business management and coaching.
That firm who included me in their succession plan unfortunately missed out on a very easy solution to a very complex problem – what do you do when you’re ready to hang up your hat, and move on from your Architecture firm?
And it’s something that doesn’t get discussed enough, often resulting in the firm closing its doors when the director has to retire. (In the case of that particular firm, I’m happy to say they’re still going strong today, and still proudly displaying my designs on their webpage!).
Get Your Succession Plan in Place Early
It really is never too early to start planning the end of your business career. It should be crossing your mind by 45, and being seriously acted upon by 55.
And if you’ve done all of that, there’s a moderate chance that by 65 years old – some 20 years after your first thought – you’ll actually have arrived at a concrete and actionable solution.
The reason this plan takes so long to enact is that it requires so many variables to come together – almost like the rare alignment of the planets.
- You need the perfect 2IC (second in command) who is not only capable, but also able and willing to step into your shoes. (in my example above, I was capable and willing, but ultimately not able).
- Your business needs to be structurally built in a manner where every single element is no longer dependent on you.
- Your business needs to offer a lifestyle and benefit to the future directors that meets or exceeds your own needs.
That’s not as easy as it sounds, and a 10-year to 20-year runway is a very reasonable amount of time to take.
Setting up a Business for Succession is much the same as setting up a business for sale.
Setting up a business for sale takes substantial work. It needs to be profitable, dependable, changeable, and enticing.
The only major difference is that in a sale, the director needs to essentially be 100% non-billable, whereas in a succession plan, the new director can still do design and other billable work.
In a business sale, the incoming party will be buying shares of your pty ltd company. And one major consideration is the reality that most buyers actually do not want to work in the businesses they buy. They want to add or merge it to an existing empire of pre-existing business to strengthen another brand – there are very few business buyers out there who are buying for the first time. As a result, the most ‘saleable’ business is one where the director only acts as an administrator. Employees do all of the design, the work-winning, and most of the operational administration.
In a succession plan, the future owner almost certainly intends on being an active part of the architecture firm – most likely as the main design director. As a result, you don’t have to do quite as much business structure – but you do need a lot more luck in finding the right candidate.
Expect to Discount Your Architecture Firm’s Value
If you’re looking at a succession plan, your Architecture firm has most likely grown to a revenue of at least 1 million, and possibly up to 10 or even 20 million dollars.
But that doesn’t means that your business is worth anywhere near that amount.
You may find that the correct person, with the right variables to take over your business, is not going to a goldmine of cash. In fact, you may find that they’re only willing (or perhaps able) to buy your shares at book value plus a year or so of salary – and you’ll need to decide if you can live with a lower payout.
Try to look at this from their shoes? Would they really want your business? Would they be willing to forego their own salary for two whole years if it meant being the owner? Most people would say no to that level of uncertainty.
Explore a Transition of Value over time
Given these difficulties in finding the right successor for your Architecture business, rather than attempting to get a payout for your business, you can also consider a gradual transition of shares in exchange for lower salary over a transition period.
This may be a much more reasonable method of approaching your succession plan.
No matter what you do decide – start the plan early. Because it’s going to take a lot of time to get right.
