Your Succession Plan and where you should begin
You’ll leave or sell your business someday, so how do you make sure it’s on the best possible terms? Here’s our advice…
What is a succession plan?
It’s a plan for the exit of yourself from your business, it’s where you will decide how and when you will exit and one of the most excruciating decisions – who will be your successor. Executing a well-thought-out succession plan can increase your sale price while ensuring the business continues to thrive after you’ve left.
Your Succession plan is an important and critical process, but it’s often overlooked process for any business. It’s a part that needs happen to allow the business to continue to run smoothly. It’s also a manageable process, not a major organisational crisis. An end result is a well-oiled machine with a multitude of favorable outcomes, not least of which is staff retention.
Succession planning definition and goals
The aim is to leave your business in the best possible shape for a new owner or successor. That means it should be operating at peak profitability, the books should be spick and span, and all your processes will be documented so a stranger could come in and run the place. Oh, and the business won’t need you anymore – no matter how important you once were.
How much time do I need?
You’ve got plenty of time, right? Well, this is where we may disagree! A robust succession plan will take 3-5 years to deliver the best result! And research undertaken by The Ministry of Business, Innovation & Employment recommends allowing 5+ years for a family business owner looking to pass on to the next generation!
The Financial Aspects
There are so many aspects to the succession plan which can move the goalposts depending on where you want to finish and how:
- Current value of the business– What is your current value, how do you work this out or better yet is it worth selling?
- Retirement income or payment – Been working all these years to retire off your hard earned years? Will, you cash out early or even create an earn-out to have continual cash over a longer time.
- Sale details – How will it look, how is your ideal buyer, are you allowed to just sell your business, or do you just pass it on to the kids if they even want it?
- Buyout details – If you’re in a partnership and you plan to arrange a buyout, enter the value of your share and your share in percentage terms. Also detail the value/percentage you will sell to existing partners, family members or external third parties.
- Taxation – The dreaded part of the transaction and not know what you will expect in return. Are you expecting something big, small, taxable or will you be eligible to access the small business concessions and avoid tax altogether? Do you have the right structure to minimise your tax position?
If your succession plan is working and the processes are in place an additional outcome may be that you will be able to take a holiday and know the business will continue to run even when you’re not there. Keeping an open mind and your vision know will ensure everyone is working towards the same goal and share in the dream together.
So where do you think you sit in the timeline? If you think this is something that you should start putting on the priority list I strongly encourage you to come along to our Succession Planning Seminars – Now is the best time to begin.
Our nest Succession Planning Seminar is Tuesday 23 October @12:00 – 1:30