Without a succession plan in place or clear direction, you’re missing out on opportunities to drive growth, reduce taxes or set the stage for retirement.
Succession planning shouldn’t just take place when retirement is in sight. For business owners it should be a vital part of their strategy – even if the eventual exit from the enterprise is years or decades away. If you’re unexpectedly unable to continue to work, a succession plan could literally save your company’s life.
Succession planning isn’t just about identifying talent for leadership or looking at the best exit strategies. It’s the process that future-proofs your organisation.
“The recent results from our William Buck Exit Survey with 300 business owners, revealed an alarming 63% have never sought advice on how to maximise the value of their business and only 34% participants have an exit strategy in place. Succession planning focuses on having the right people and financial structure in place, so your business will continue to accumulate value. Putting a succession plan in place will help you predetermine what steps need to be taken if you’re looking to exit or sell a business and how you can protect and preserve your wealth and your company’s legacy.”
Results from the survey also indicated that over 63% of business owners have no idea how much tax they would have to pay on the sale of their business and if they’re eligible for the small business capital gains tax concessions. There are many elements that can impact a succession plan and the outcomes – your choice of entity structure, valuation methods and financing options. An effective succession plan looks at a business to see how it can increase its value so if the time comes, it will be sale-ready. This could mean refocusing on the most profitable parts of the business or cutting segments that weigh it down.
Ultimately, the purpose of having a succession plan is to understand the value of your business, how to preserve that value and secure the survival and growth of your company or its assets.
Here’s 8 steps you can take to set up a better succession plan.
1. Identify the owner’s personal objectives & cash needs
Look at planning ahead for estate and gift taxes, life insurance and investments, personal retirement goals & cash flow needs.
2. Review business operations that are critical to the company’s success & survival
Look at key roles & functions, growth plans, management capabilities & current business value. Identity the people you need to work with to produce the best succession plan such as your executive teams & professional services groups.
3. Put systems in place & implement or fine tune a strategic plan to optimise business processes
The more a business can run itself, with systems and protocols, the more attractive it is to potential buyers.
4. Look at areas that would enable future success & survival
Consider the options available (i.e. MBI, MBO, refinancing & mergers) and what aligns to both the needs of the company & the owner.
5. Learn from others & ask around
Talk to other business owners who have recently sold, passed on, or wound down their business and ask them to reflect on their experience. What did they do right? What would they have done differently?
6. Link it all – recruitment, succession, talent review & leadership development processes
Think about how you can increase proficiency, create career path assessments & coaching & mentoring programs.
7. Evaluate if you have the talent pool (current & emerging) for each strategic area
Identify competencies, knowledge, skills & experience required for exceptional performance and where the gaps are.
8. Regularly review the plan to determine whether it remains effective or requires revisions
An effective succession plan must be flexible and change as the business evolves. Ensure your plan includes processes or strategies for handling emergency situations, including death, incapacity, or unanticipated departure.
By taking the time now to build a proper succession plan, you can protect your business’ longevity and secure your financial future.