Succession Planning

AUSINDUSTRY in conjunction with ERNST & YOUNG, have developed a Succession Planning process to assist small business owners to develop strategies to exit their businesses in a manner that realises maximum value and marketability of their business while ensuring business continuity.

IN Australia, 97% of all businesses are classified as family and privately owned. Together, these account for a combined wealth of around 4.3 trillion dollars. Of these, a significant proportion are classified as ‘small businesses’ – that is, a business employing less than 20 people.

Whilst small business is in general currently very strong, one of the key concerns for this sector is the level of preparedness for succession planning. A 2006 study by RMIT found that 81% of the owners and operators of family businesses (with the majority of these being small businesses) plan to retire over the next ten years.

Of further concern, is that when it comes to business succession planning, 80.3% of the current CEOs of these family businesses have not documented management succession plans; 75.2% have not documented ownership succession plans, and 65.1% indicate that the family has not agreed upon the succession plans and succession of the next CEO.

WHY HAVE A SUCCESSION PLAN IN PLACE?

Succession planning is needed for both planned and unplanned succession. Planned succession includes retirement or sale of the business.

Unplanned succession occurs generally as a result of unpreventable circumstances, such as death, total permanent disability or incapacity.

THE SUCCESSION PLANNING PROCESS

1. Evaluate Your Position
   This is not only in terms of the business’ goals and objectives, including its present financial performance/position and forecast future financial performance/position, but also addresses where the owner and leader are personally at that point in time.
2. Set Your Goals
   After evaluating the current position, the next stage in the process is for goals to be set by the owner of the small business. The key topics include personal, financial and business goal setting.
3. Plan Your Strategy
   As succession can take two different streams, the owner must choose which is the most appropriate for their situation, changing leadership (or management) whilst still maintaining their ownership, or exiting from ownership.
4. Changing Leadership
   Should a decision be made to exit from the leadership role but not the ownership, then the key topics relate to how the owner will protect their investment and ensure the continuity of the business without needing to be present to run the business on a day-to-day basis.
5. Exiting From Ownership
   Should a decision be made to exit from ownership, then the key topics relate to how the owner will manage the transactional process to ensure it gets the best possible financial outcome upon succession. As such, it becomes necessary to examine all the elements that impact upon selling the business and maximising its sale price.
6. Funding Your Retirement
   Regardless of whether the succession strategy chosen is to change leadership or exit from ownership, retirement funding is a major topic that must be considered.
7. Managing Your Succession Plan
   As the plan progresses it is necessary to review and update the key management considerations of risk management, project management and stakeholder management.
8. Ready for Succession
   It is up to the owner to determine when they should implement the plan to succeed from the business

This information is a summary of that available from www.sbsp.com.au/centric/overview.jsp

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