Succession Planning
Designing your exit + leaving your business on your terms
Succession Planning
What is Succession Planning?
Succession Planning is you designing your transition and exit from your business and having control over the process.
Succession Planning is a strategy for identifying and developing the future leaders and directors of your business and company.
It identifies the right time and most importantly, the right way to exit from your business. Succession planning, when done right, provides a way to determine what skills are needed, what people are available to fill the roles and also, what the timeline is to get everything and everyone to where they need to be.
What Is The Process of Succession Planning?
Succession Planning gives you, as a business owner, the chance to consider lifestyle, health, financial position, disposal or transfer of assets, changes to business structures and estate matters.
It is the process of recognising important positions throughout a business and company and identifying possible successors for those positions. It plans to prepare those successors, through a wide range of training and experience to enable them to step in to leadership roles when needed.
It can be broken down into three main elements:
- ESTATE PLANNING – the transfer of ownership of family or individual assets;
- RETIREMENT PLANNING – the transition of labour and management; and
- BUSINESS TRANSITION – transfer of control of the business.
Why Is Succession Planning Important?
The overall process of succession planning is to make sure that your business or company always has the right leaders in place should there be a change, especially a change that happens quickly. It also gives the current leaders a proper, well planned and well thought out exit from their business when their time to retire or pass the business on to the next generation comes.
As a business owner, you need to take the time to identify who you would like to take over your business when the time comes to hang up your working boots. Â Your successor could be anyone from a family member, an employee, a business partner, an outside buyer and the list goes on.
So while it might be a difficult task, the more time you take to think about and get your succession planning right, the happier you will be with the seamless transition.
Learn More About Succession Planning Services
What is your exit plan? Â You’ve been working on your business and within it for so long but have you stopped for a moment to consider what you would like to happen when it’s time for the next chapter?
Regardless of what the chapter looks like for you; whether it’s a new business venture or retirement, you need to make sure that your business is set up correctly from the start so you can have a clear, tailored strategy designed to exit from your business.
If you would like to ensure that your business is set up correctly from the start and you have a clear tailored strategy designed to exit your business, download our free guide.
SUCCESSION PLANNING FAQS
What Is Succession Planning?
Succession planning is a strategy, or group of strategies, that enable the current stakeholders in a business or investment group to either realise or maximise the value of their business or investment assets.
Succession planning can be targeted at ensuring the value is retained as key personnel change their roles or move on from the business or investment group.
It can also be focused on a set of strategies to maximise the value of the sale of your business or investment assets.
You may be planning for your personal succession, where you step back from operational/management roles to allow you to act more as an investor in your business.Â
You may want to see your family step up in your business, and a succession plan can help identify strategies and actions to allow this to happen effectively.
A succession plan can also be implemented in stages, with key milestones. You may want to bring in another equity owner in part initially, and then progress to a full sale/transfer at a later point.
What Does A Succession Plan INvolve?
Exactly what strategy or strategies are required in your succession plan will depend on the current status of your business, your financial position, and your intended future status.
For example, if your currently own and operate a business, and wish to realise the value by sale, you may need to put systems in place to ensure the prospective purchaser will be able to continue to operate the business successfully. This may include documentation of operations, and implementing agreements with key people within your business. It should also involve ensuring the outcome is tax efficient, maximising your return on the future sale, which may require action before sale.
Having your business “sale ready” with records, systems and documentation in place can help the value of your business (and even keep current operations sharp). Your succession plan can help identify steps to ensure you are “sale ready”.
A succession plan should include a risk assessment, with management of any risks also included in the planning process. Risks can include supplier agreements, existing service contracts, future financing requirements, key personnel matters and insurance risks.
If instead, your intention is to pass the business or investment on to future generations, an understanding of how such a move can be implemented without adverse tax implications may be the key to the successful plan.
The plan should involve relevant stakeholders (for example; current owners, future generations, relevant family members). The best succession plans bring the key parties into the strategy.
If your business or investment has a “brand” then you should ensure your succession plan protects that “brand” before, during and after the succession progress.
A good succession plan is carefully tailored to you, based on your circumstances and future goals.
Does Succession Planning Work?
Whilst any plan or strategy could come undone for unforeseen circumstances, a well-developed plan that engages the appropriate parties and includes contingencies such as finance, health, and timelines provides both the initial roadmap and a reference point should a contingency require a chance to one or more parts of the plan.
A good succession plan will provide flexibility to adapt to a change in one part, without impacting the likely success of the plan.
The succession plan should provide a clear understanding of the strategies involved, how they will impact you and what needs to happen to implement them properly. A plan containing the details on these key points is more likely to work than one without clarity on the strategies and how they need to be implemented.
If you are working on your plan with your adviser, make sure you understand how the strategies are expected to impact your outcome, and if there is something you do not understand, ask questions until you are clear.
Succession planning can and does work, but it. does take effort, and you will need to invest time and resources to ensure the effective development and implementation of the plan.
One area we have seen great success in has been family succession, and in particular family farming business succession. Bringing the family together, and gaining agreement on timelines and financial expectations combined with optimising taxation aspects can provide positive outcomes for each party. Â
Why Succession Planning?
If your business or investment has value, then planning to maximise the value of that business or investment is logical. Taking strategic action before placing your business on the market ensures you are in the best possible position to understand your options and future outcomes.
Whilst the saying “Failing to plan is planning to fail” may not be true in each instance, often you may only have one opportunity to maximise your future position. Succession planning may not guarantee success, but it will ensure you understand your potential and your options.
Your business or investment is unlikely to be “the same” as another, so having your circumstances at the centre of the plan is important to achieving your goals.
Who Benefits From Succession Planning?
We could simply say – you!
But this could mean you and your spouse. Equally, it could be your company shareholders who benefit greatly from an effective succession plan.
If could be your children, if they are either to take over the business or investment or receive some benefit from the sale.
It could also be that your employees are the beneficiaries of your having systems in place that ensure the business remains profitable after you depart, and their jobs remain stable.
Lastly, it could be the purchaser of your business or investment who also benefits due to the quality of the systems and procedures in place and the key staff retained in the business they have purchased.
When Should I Begin Succession Planning?
There are two principal aspects to address in this question.
Firstly, when considering the best possible taxation outcomes from a business or investment, one of the keys is how the business or investment activity is structured.
When is the critical time with structuring? We would say there are two points in time.
1. Begin with the end in mind
We encourage our clients to consider the future when establishing a business or investment structure. this can be vital in maximising taxation concessions such as the Small Business Capital Gains Tax Concessions. It can be daunting to invest thousands of dollars into structuring your business or investments upfront. But that payoff may be many times over.
2. A change in circumstances
You may have thought you were going to hand on your business to your children, and they are now overseas or married and it is no longer an option. Or you may have grown your business more than expected, or you may have simply decided “the time is right”. Do not be daunted that it is “too late”. We would encourage you to consider your future goals, and if realising a handover of a business or investment is part of those goals, then you should consider your succession plan.
Secondly, the timing of your plan should be based on your intended outcome. Even if you do not see an exit point in the near future, consider what a sudden exit would look like and how it would impact you. We mentioned above having your business “sale ready” – should an unexpected personal event mean your situation is best serviced by a sale of a business, having an understanding of your succession alternatives available to you provides you with the opportunity to make an educated decision in a shorter timeframe than may otherwise be the case.
So we would say, taking both of these aspects into account, the time to begin succession planning is before you need it.
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