SUCCESSION PLANNING: YOUR CHECKLIST
There’s no shortage of things to consider as a business owner. One thing you may not have thought about is a business succession plan. Many owners who would never dream of neglecting other key aspects of their business procrastinate for years about putting together a plan of their own. If you’ve ever thought to yourself ‘I’d like to sell my business or pass on my business in the future’, then having a plan in place is important.
There are no two ways about it: thinking about how to exit a business that you may have spent years building is time-consuming and potentially distressing. But a failure to put a succession plan in place could lead to problems for you and the people you care about. There are many reasons people move on from a business – buying another firm, entering a new partnership, returning to paid work or retiring – but having firm plans in place can deliver not just peace of mind but a competitive edge.
If you’re ready to start thinking about what succession planning might mean for you, the following checklist is designed to help.
To construct a succession plan, you’ll need to answer a handful of core questions about what you want for yourself, your loved ones and your business. Start the transition planning process by determining the following.
What do you want to do with your business?
If you don’t plan on shutting it down, you’ll either need to sell or pass it on to someone. (And you can’t necessarily assume a family member will be willing to take control of the business or that it will be easy to find a buyer.) What kind of person or organisation might be a good fit? You may find that, with a little thought, some unusual or creative opportunities occur to you.
When do you want to exit your business?
Do you want to be out within five years, by the time you’re 55, when a family member is ready to take the reins, or as soon as you can find a buyer? Working out a rough timetable can be a great advantage; it gives you the benefit of a deadline you can work towards. A secondary benefit is that this preliminary planning can stand you in good stead if personal or economic circumstances force you to exit sooner or later than planned.
What do you want to do once you’ve exited your business?
Will you start another business? Get a job, travel the world or retire with your feet up? Whether you know it from the very beginning of your business or your vision forms along the way, having an end goal in mind can help steer your actions and decisions on the right course.
What are you going to do with any proceeds from the sale of your business?
And, how are you going to support yourself once you no longer own your business? Taking a close look at your assets and expenses can help you determine whether you invest for the long- or short-term, and into which kind of investment vehicles.
Once you’ve worked out the fundamentals, it’s time to start seriously preparing for your exit. The preparatory measures will differ depending on whether you’re selling the business or passing it on. Either way, things will go more smoothly for all parties if you’ve prepared for your business exit before you walk out the door.
1. To-do list: Selling your business
1. Improvements – Few potential buyers want to purchase a ‘fixer-upper’. If your business is crying out for some improvements, be it new equipment, better-trained staff or a website refresh, look to take care of these things before going to market.
2. Valuation – It can be surprisingly difficult for a business owner to come up with a realistic business valuation. To avoid setting the price too high or low, consider engaging an independent valuer.
3. Communications – Work out what information to share with stakeholders such as staff, customers and suppliers, and when to share it. As a general rule, taking a need-to-know approach will minimise workplace disruption and industry gossip.
4. Tax – With the help of your accountant or financial planner, understand any tax liabilities from the sale of your business and the soundest way to plan for that.
5. Legal – Talk to an experienced business sales legal practitioner to ensure any legal implications around the sale of your business are taken care of.
2. To-do list: Passing on your business
1. Structural – Consider whether the legal structure of the business will need to change. For example, it might make sense for you to operate as a sole trader, but if you’re handing the business on to two or more family members, they may need to run it as a partnership, a company or even possibly a trust or co-operative.
2. Practical – Take care of the practicalities. Is there a family member willing and able to assume operational control of the business? Do they already have the skills they need, or do you need to train them?
3. Legal – Think about the legalities. What will happen with the business’s ABN/ACN, domain name, lease, licences and insurance policies? You should also consider the legal implications if either yourself or your beneficiaries become ill.
4. Familial – It’s important now to consider all aspects of family dynamics. If a family member is taking over the running of the family business, are they also taking complete ownership of it? If not, what will be the rights and responsibilities of other family members who may have an equity stake in the business, but no day-to-day involvement? For scenarios like this, putting in place a dispute-resolution mechanism to resolve any future disagreements about the direction of the business can be a powerful way of protecting both your family and your business legacy.
Invest in a support team – You’ll need a competent accountant and solicitor. Many sellers also find themselves grateful for the help of a bank manager, independent valuer and business broker.
Realise you don’t need to reinvent the wheel – Millions of Australians before you have exited their businesses. There are many helpful resources available, such as the detailed free succession-plan template available at business.gov.au