Succession Planning - Passing the Baton
What is succession planning?
Succession refers to the transfer of the 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.
If your business is your major source of income and wealth, you must do all that you can to protect its current and future value. Make sure you are in a position to control your succession. Succession planning tends not to become a priority until it is too late. Don't wait for something to happen - for example, ill health, a partnership dispute, relationship breakdown, major clients or staff leaving the firm.
Preparing a business succession plan requires you to write down your strategies, goals and objectives so they are not just thoughts.
Did you realise that there are 20 fundamental components that need to be considered when planning your succession? Three major factors you will need to consider are:
- Control
- Business Value Gap
- Exit Options.
Control
Effective Succession Planning allows you to self-assess your attitude to control. Your attitude to control strongly influences the outcomes of your business succession plan. For example, if you are not prepared to consider a change in ownership, selling will be your primary exit option.
Effective Succession Planning also allows you to identify strategic events that you can and can't control. Remember, that even though you have no control over some events, they can still directly affect your business succession.
Business Value Gap
A business value gap analysis determines what your business is worth today and what it needs to be worth at retirement.
This is particularly important when you are relying on the sale of your business to fund your retirement. A shortfall in business value at retirement will greatly affect your desired standard of living. The worst case scenario would be that you may not be able to afford to retire.
You can calculate your Business Value Gap by working through the following steps:
Step 1: Determine Retirement Income
Step 2: Determine Retirement Assets
Step 3: Calculate Business Sale Price
Step 4: Calculate Business Value Gap
As a result of this, you may need to grow your business before you can afford to go.
By maximising the value of your business, you will be in a far better position to choose among the many different exit options.
Exit Options
Can you list all of the different exit strategies available for you to exit your business?
When determining your exit strategy it is important to consider your life goals and business gap as these factors will influence your choice of exit option.
Ensure that you are aware of all alternatives and the benefits available from each before deciding on your exit strategy. Succession does not just mean selling your business.
The best thing to do NOW is start planning your succession.
Skeggs Goldstien Associates located in Norwest Business Park is a wealth management practice specialising in growth, succession and transition planning for small to medium businesses. Skeggs Goldstien also provides specialised Staff Values Programs and Business Life Planning services.
To discuss your individual business and to find out more about developing a sound succession plan, contact Skeggs Goldstien to make an appointment.
Darryn Fellowes, Wealth Adviser - Skeggs Goldstien AssociatesGWP Magazine Issue #25, July-August 2009
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