Planning for succession

A risk that many business owners take is ignoring succession planning until it is too late. Succession planning is a crucial strategic issue facing all business owners. More business owners are becoming aware of this issue and are keen to implement effective succession planning strategies. However, there are still a large number of business owners who have not started planning for their succession.

What is succession planning?

Succession refers to the transfer of ownership and/or management of a business. Ownership succession focuses on who will own the business, when and how that will happen. Management succession focuses on who will run the business, what changes will occur and when the new manager will be accountable for results. Preparing a business succession plan requires you to develop and document your strategies, goals and objectives so they are not just thoughts.

Why is succession planning important to your business?

Prevention is better than cure. The best time to start planning for your succession is when you buy or start your business. Succession planning tends not to become a priority until it is too late.
Every business will undergo a change of ownership at some stage. If this is not a planned event then it will be imposed on you by a triggering event such as ill health, a partnership dispute, key staff or major clients leaving the business or there may be a sudden realisation that this is not what you want to be doing anymore. This will result in an unstructured disposal of
your business and a loss of opportunity for you as the seller. A succession event that is not planned will, sooner or later, become imposed.

If your business is your major source of income and wealth, you must do all that you can to get the most value out of your business. Make sure you are in a position to control your succession. For planned succession events, greater benefits are generated the sooner the planning process commences. Business owners receive greater wealth from a planned succession.

Don’t wait for a triggering event to occur before you consider your succession needs. The best thing to do is start planning your succession NOW.

What are some of the benefits of planning for succession?

Some of the benefits of planning for your succession as early as possible include:

• Better equipped to position your business for change
• Able to determine if there is a business value gap
• Achieve a life balance and have more choices at exit
• Use benchmarking is a value driver
• Realise that growth will help meet sale price expectations
• Learn to manage risk events
• Maximise succession opportunities from alliances
• Assess and confirm preferred exit option
• Ensure sale of business is fully planned for and the value optimised
• Choice of business involvement post succession

How do you start planning for your succession?

As a starting point, consider if the following are important to you and your succession.

1. Owner – evolve your business with greater control over future events
2. Transition – understanding that growth may be required to meet sale price expectations,
   and that clients and staff strongly influence succession outcomes
3. Succession – managing risk events and maximising succession opportunities
4. Selling – realising optimal business value with many buyers