What 6 key aspects do you need to know about succession planning for your business?
Succession planning describes the process of a business owner transitioning out of their business. Having a plan is essential to ensure the right option is chosen. Along with ensuring the relevant steps are taken to achieve your desirable outcome. There are many different ways this can be achieved.
Planning for life after business and ensuring protection for yourself, your staff, your customers and the business itself is paramount. It is important to make sure a problem does not occur throughout this whole transition. And that the process runs as smoothly as possible for your peace of mind. You have worked hard and want to maximize the energy and achievement of your endeavour.
Why is it relevant to you as a business owner?
A benefit of a succession plan allows the business owner to identify their company’s opportunities for improvement. And to up scale. It also highlights impediments to growth, which may diminish the value of the business and /or turn off prospective new owners.
For this reason, having a succession plan is so important for every business owner. It makes sense that when it comes time to exit, you would want to receive the best possible value for your efforts. Building and running a business is hard work so having a good succession plan is the best outcome for you the business that you have poored your blood, sweat and tears into.
Additionally, developing and following a plan will allow you to plan ahead for life after the business. And will allow you to minimize tax liabilities. As well as ensure that the transition runs as smoothly as possible for yourself, your staff, your customers and your business itself.
What are the different options for exiting a business?
6 most common paths owners can choose from when it comes time to exit their business are:
1. Business merger:
Merging with a competitor can simultaneously offer additional value to the new owner. Most importantanly to employees and customers while allowing the owner to hand over the reins to another easily.
2. Management or employee buyout:
This is where a buyer or group of buyers to come from within the business itself. It may involve other directors, managers and board members buying out the share held by a co-owner or a single or group of employees coming together to take over.
3. Listing on the stock market:
Many start-ups choose to embark on an IPO to take the business into public ownership once it reaches a certain size.
4. Passing the business on (to children or other relatives):
Many businesses retain family ownership over a number of generations. Allowing owners to bring in new ideas and enthusiasm for younger generations. And above all, without losing the family’s connection to the business through a sale.
5. Sell the business:
This is probably the most recognised form of exiting a business. It allows the owner to receive a lump sum payment for the asset they have built up.
6. Shut the business down: Lastly, and sometimes sadly, the final and sometimes the simplest way for an exiting a business is to just shut the doors and cease trading. Early succession planning can help avoid this.
How does succession planning work?
In a bid to explore your options in detail and receive bespoke advice on how best to manage their eventual exit from the business, it is wise to work with a consultant familiar with succession planning.
By doing so, you not only received the much-needed advice to plan your retirement, but can incentivise your sales staff to generate higher returns. Ultimately increasing the value of the business.
With this in mind, you have worked hard to build up the business from scratch. Built a highly loyal customer base. You want to see these customers continue to receive the trusted service to which they are accustomed. And for the business to continue growing once it moves to new management.
An estimated $4.3 trillion of wealth locked up in these firms and over 70 per cent of all Australian businesses being family-owned and operated. Having a succession plan to capitalise on this value when choosing to exit the business is crucial.
Your Succession Planning Process
Using the advice from us as your succession planning consultant, you are able to overcome your initial fears. And together prepare the process of transferring ownership of the business when the time is right.
Our consultation will determined which strategy is best for you. Explore all the options. Perhaps employees will be involved in the buyout. It will spell out how much each will contribute, allowing each member of staff to begin exploring their own options to finance the purchase etc.
If this happens to be your plan, customers are often thrilled with the news. They will continue to be dealing with the same people they know and trust. And you are now at ease that your legacy and customers will continue to operate in good hands.
Ready to meet with us? Provide us with some details about yourself so we may prepare and get the most out of our first meeting.