Did you know that 97% of all businesses in Australia are small businesses? And 75% of these business owners have no exit plan in place. As a small business owner, you may not think something like a succession plan is applicable to you, but it’s important to have a strategy in place no matter how small your business might be.
Whether you decide to sell, retire or pass your business onto the next generation, there will eventually come a time when you hand the reins over, so it’s essential to be prepared for that day. A business succession plan, or exit plan, outlines everything that will happen when you sell, close or transfer ownership of your business.
Having a succession plan in place is crucial to help you smoothly transition out of your business. By being prepared, you’ll enhance the continuity of your business and maximise its value for the next owner. This kind of planning is something you should think about years before you intend to exit, in the event of something unexpected happening.
Why have a business succession plan?
One of the main benefits of having a succession plan is that it puts you in control of your future both from a business and personal viewpoint.
From a business perspective, it allows you to enhance the strategic direction for your business, facilitate a seamless transition, establish the highest value for your business and have a greater chance of ensuring business continuity.
The personal benefits of a succession plan include being more prepared for the next stage of your life, having a retirement income plan, the potential to minimise the tax impact on the sale of your business, and the chance to address any family members’ interests and concerns.
What to include in a business succession plan
So, how exactly do you write a plan? Many resources such as the Australian Government website provide free templates you can use as a guide. There are no set rules about what to include, however you may want to include details regarding:
- The successor, whether it’s a family member, business partner or someone else. Who exactly is going to take over management of the business? If there is going to be more than one person involved, what will their roles be?
- The type of succession, whether it’s a partial or full succession
- The timeframe over which the succession will take place and a final handover date
- Key personnel changes and skill retention strategies
- Any restrictions that will come under the plan
- Legal considerations. Include details on any buy-sell agreements, wills, power of attorney and business, estate and tax plans
- Any risk management associated with the plan
- A communication strategy. Many successions don’t work due to relationship issues or lack of training given to the recipients
- Financial considerations such as your retirement income, the final sale price and any tax implications
- You might consider involving your accountant and lawyer or business adviser in discussions with family members to avoid disputes relating to inheritance, ownership or management
Having all of these elements in place for your succession plan will provide the assurance that your business continues to thrive while you achieve your personal goals and financial security for the future.
If you’d like any professional advice for putting together a business succession plan, please call us on 02 9241 2575.