Developing a Succession Plan

Each business succession plan is unique. The plan will vary depending on the owner’s objectives, family situation, financial position, health, age and a host of other considerations.

A family succession plan can incorporate business trusts, gifting, sale or part sale to family members.

A non-family succession plan can involve full or part sale to minority or employee owners or alternatively be an open market sale.  Other variants depend upon how the owner exits the business or future involvement after the sale.

	Succession Plan Template (RTF 80Kb)
	This template assists in creating a departure plan for the business owner or manager. Download and adjust to your company's needs.

Establish goals and objectives

When developing a succession plan the owner needs to set personal goals and vision for the business plus their future role in the business. 

The type of goals and objectives the owner could consider are:

• the amount of income to be comfortable in retirement
• if you want future involvement in the business or in another business
• the impact of selling or transferring ownership to a family member will have on other non-participating family members
• the goals and ideas of all interested parties and their wish or ability to buy you out
• the impact the owners departure will have on current business through key relationships with suppliers and customers.

Family involvement in making succession decisions

It is important to have the family and all stakeholders involved in the decision-making process. This will reduce many of the problems relating to inheritance, management and ultimately ownership.

The important factors are:

• communicatiing to all interested parties. Give them the opportunity to express ideas or opinions 
• a process for resolving disputes and family change. This may require involvement from outside advisors such as a lawyer, accountant or family business advisor
• developing a collective future vision for the business, how it will operate and what is expected
• remembering always the need to be able to separate family and business.

Identify successor(s)

Is there someone who can take over the ownership and management of the business? Each potential candidate has to be assessed individually as to suitability, capability, acceptability, commitment, determination, skills and experience.

Once selected the owner will need to identify when and how training and handover can be done.

Estate planning

Estate planning is extremely important and will affect the financial future of the business owner, the business itself plus anyone with a financial interest in the business (family members, partners, employees etc).

Advisors such as a lawyer, accountant or financial planner are necessary to ensure all important issues are considered, such as:

• taxation
• retirement income planning
• provision for active and non active family members
• financial implications impacted by the transfer of ownership of the business

Each of these advisors will have their own area of expertise and will be able to provide necessary pieces of the plan to maximise the benefits to the business owner and meet compliance requirements. 

Contingency Planning

It is important to consider what could go wrong and prepare alternatives on how to solve problems as they occur.

A booklet called, "Good Security - Good Business" explains the importance of risk management and why small to medium businesses need to be prepared to deal with a range of hazards.  It is available on the 'Trusted Information Sharing Network' website (see the External Links box on this page).

Corporate structure and transfer methods

In many small businesses, the owner will have been the sole person responsible for all operations.  As transition takes place it may be wise or necessary to differentiate between ownership and management responsibilities and create new position descriptions for these roles.

Review and update the organisational and/or structural plan for all areas of the business and include agreements. Make sure current family members and employees have clearly defined roles, responsibilities and accountabilities to assist in a smooth transition to new ownership and management. Ensure key management and specialised positions are filled as it makes the business more attractive and prepared for transition.  Potential buyers see a  business with a strong management and workforce is a better buy.

Each business is unique and must have plans built based on its uniqueness and current circumstances.  Involve a team of professionals to aid in reviewing the alternatives and select the method best suited to your needs:

• a lawyer can examine the legal implications and how to minimise potential conflicts between buyer and seller as well as looking after the interests of family members
• an accountant can help you prepare the financials, assist with valuation, advice on tax and company structures.

Business valuation

Part of a good plan is to increase the value of the business when it goes on the market. This will make it more attractive to potential buyers and maximise tax benefits to the current owner.

A business with documented plans for growth, continuous improvement and not dependent on any one person will more often attract a higher value. If a business is not in this position it is often a good investment to talk to a business advisor about how to make the business sale-ready. 

Accountants, realtors and business brokers will all be able to value a business.  Review the options with these professionals to select the best method.

Exit Strategy

Planning to let go and not be involved in the day-to-day running of the business is an important part of a succession plan. This part of the plan should detail a schedule of exit events, transfer method and timelines. 

Communicate the exit strategy to everybody who will be affected. This process is an opportunity for them to raise and resolve concerns.  

Implementation and Follow-up

When the plan has been prepared well in advance, review and revise it every three months.