Why all businesses need to plan for succession

Succession is what happens to your business when you ultimately decide you want out.

Succession Planning allows you to transition your business to new ownership in a managed and systematic way; reducing stress while achieving a greater outcome.

However, a recent report from KPMG Enterprise and Family Business Australia (FBA) has found that more than 60 per cent of small business owners are approaching retirement, but many of them have no documented succession plan in place.

Why all businesses need to plan for succession?

A Succession Plan is often rendered a one-off thing left rotting in a drawer; this mindset will inhibit its effectiveness.

It’s crucial to consider Succession Planning as an important aspect of your overall business strategy that requires regular reflection and ongoing development.

A robust and effective Succession Plan takes a maximum of three to five years from initial planning to implementation. Having said that, a shorter term plan is better than no plan. Generally, the longer you have to execute your plan, the bigger the opportunity you have to maximise the value of your business and therefore capital you extract on exiting.

It isn’t just about securing your future

If you were hit by a bus tomorrow, how seamless and pain-free would the transition be – both for your business and those who rely on it? In such an event would the operation, management and value of your business be compromised?

Succession Planning isn’t just about imminent retirement. It’s still an extremely valuable exercise whether you’re planning to retire in 20 years, or if you’ve already lined up your successor. Should something unforeseen happen to you, this planning will downgrade a major crisis to a significant but manageable event.

By having the conversations now and documenting clear intentions you could save yourself (and your stakeholders and family) a lot of pain should an unexpected event occur.

It’s also about efficiency

Planning for unexpected scenarios forces you to assess who does what, why and how they do it:

  • Is the right person performing the task?
  • Is their process the best way of doing the job?
  • If multiple people perform the task are they doing so consistently? Should this task in fact be the responsibility of a single team member?

It’s about providing a safety net for your team. Documenting the key business processes in your company enables you to devise the most efficient system for each task. Having a documented process to follow is helpful when a team member is absent but most importantly when it comes time to transfer this knowledge to a new manager or owner.

The Succession Planning process

Defining the relevant key steps for your business

Without dedicating time to the succession process, you’ll miss valuable opportunities to reduce stress and improve value. Devising your succession process will ensure you consider all potential opportunities and make the right decisions for your business, your customers, your team and your future.

Your process will include at least the first eight steps below, and probably a good number of those following:

  1. Clearly defining your business and personal goals
  2. Establishing and documenting the vision for your business
  3. Establishing your business support network
  4. Identifying the factors that may influence your plan, e.g. changing marketplace trends
  5. Researching and deciding on the most appropriate succession option
  6. Identifying potential successors.
  7. Creating a succession timeline (in order to work backwards)
  8. Developing and documenting your Succession Plan (to be aligned with your overall strategic plan)
  9. Creating a robust Organisational Structure (management structure / role definitions)
  10. Documenting and completing internal due diligence requirements (both financial and operational)
  11. Valuing the business (using an external provider)
  12. Business development / grooming for added value
  13. Financial Forecasting (how the business could be valued in future)
  14. Restructuring for the vendor (assets included or excluded from the succession)
  15. Restructuring for the purchase if generational succession (Trusts)
  16. Financing (tidying up the balance sheet)
  17. Protecting your assets (security, structure, shareholder agreement/ insurances)
  18. Updating other insurances
  19. Updating your important personal legal documentation (Wills, Memorandum of wishes, etc.)
  20. Tax planning to ensure tax is considered and provided for
  21. Packaging your business in an appealing and saleable manner
  22. Taking your business to market
  23. Filtering enquiries from potential buyers
  24. Documenting and signing the sale and purchase agreement
  25. Facilitating / completing settlement
  26. Dealing with post settlement matters
  27. Delivering an ongoing consulting arrangement (if you are to remain in the business)

The business that you have grown could be your nest egg. With so many businesses likely to hit the market in the coming years, it’s more important than ever to groom your business wisely. Great businesses will continue to achieve a high sale value; others will face greater pressure or potentially be rendered unsalable.

If you would like to receive a full PDF Guide to Succession Planning including the detailed steps and considerations to create your Succession Plan, submit your enquiry here.

Succession Planning is a journey, not a destination

Succession Planning is not only about preparing the next generation but also ensuring the business can weather the unexpected without negative consequences. The succession of a business is also a fantastic opportunity for the next generation to enhance the business and add value.

Learn more about the Benefits of our Succession Planning service.

Contact us today to get started on Succession Planning so that you can extract the maximum value from your business with minimal stress.

This is general advice only and does not take into account your financial circumstances, needs and objectives. The article should not be relied upon as specific information or advice without obtaining appropriate professional advice after a detailed examination of your particular situation from a qualified KMT adviser.