SCC Chartered Accountants

   

What is succession planning all about?

It's about how a business owner is going to gain full financial benefit from leaving or transferring the business management role and ownership.

A succession plan will ensure the business remains viable and successful, no matter what the circumstances, by allowing for contingencies.

Why is succession planning a problem for business owners?

It’s an Australian problem because 96% of all Australian businesses are classified as small businesses (that is, they employ less than 20 employees).  With the average age of these business owners being 55 years, and 81% of them planning to retire within the next 10 years, more than half of these owners are depending on selling the business to fund their retirement.  With so many businesses about to change hands, there’s a lot to be done to ensure these owners maximise their opportunity.

The collective value of these business sales is expected to be trillions of dollars, so that’s a lot of funding that potential buyers need to find to afford buying from the current owners.  The businesses that will be most attractive to buyers will have foundations of good systems, well structured processes and demonstrated earnings and profits enabling maximum borrowings to provide the means for the acquisition.

Sadly, of the 7.5% of businesses exiting each year, 6% close their doors without any attempt to sell because the owners do not have a business considered a saleable asset.

If you’re one of the 75% of business owners that have not yet attempted to sort out their succession planning issues, it’s time to get started. 

One common mistake made by business owners is thinking it’s only necessary for business owners to implement succession planning when they are soon to retire.  It’s important to remember there are many circumstances that may result in owners exiting their business. 

Some of these are planned such as retirement, but many reasons for exiting are unplanned, such as disputes between co-owners, early death, illness or disablement.   

What are the benefits of arranging a succession plan?

Having a formal succession plan allows business owners to exit on their terms to ensure they receive their rightful entitlements and equity, no matter what the circumstances. 

The type of succession plan a business owner needs will depend upon many factors of the business, such as structure, number of co-owners, partners or directors, debt and guarantees provided by the business, potential buyers (ie key staff in the business, co-owners, selling to competitors through merger or acquisition etc).

Who can assist you with your Business Succession Planning?

Business owners should seek advice from succession planning specialists to assist them with the process.  Having a comprehensive approach from specialists will enable the business owner to maximise your financial outcome, reduce tax payable on the sale proceeds and keep the business viable in all circumstances.