Long-term plans in unpredictable times

Succession planning

The tough questions every business owner needs to ask themselves in 2021.

Last year brought unprecedented challenges for both people and businesses. Business owners across Australia have remained resilient – but there’s always more work to be done.

As a business owner, you often have competing priorities. While you need to oversee the day-to-day priorities of running a business, your long-term plans are equally important. Whether you’re running a small start-up or a large corporation you have built over time, considering who will take the reins if you can no longer run the business is key to success in protecting your hard work.

In my 15+ years working in financial services I’ve developed a niche for working with business owners, especially those within the agribusiness sector, and a passion for assisting rural clients with their financial needs, who may otherwise be forgotten due to their remote location. Although my job title is financial adviser, I like to see myself as a partner and life adviser to my clients. I’d describe myself as a trumpet-playing lover of the outdoors working in a bank. A family man with three kids, I grew up in the country, raised by small-business owners, and have previously owned a small sheep property myself – so I understand the challenges of running a business and providing for your family.

“An exit plan, if handled well, can support a comfortable future.”

My aim is to offer direction so business owners can be secure in their long-term plans. By assessing their starting points and setting a goal, I’m able to assist my clients in improving their overall financial wellbeing. During my extensive career, I’ve seen a lot of people go through the succession planning process and business exits. Here are a few tips and tricks I’ve picked up over the years.

Succession planning: failing to plan is planning to fail?

As the age-old saying goes, failing to plan is planning to fail. For rural clients, creating an exit plan is vital. In specific cases, their business is often their main source of income, biggest asset as well as their family home.

I find the best place to start is by examining your current circumstances and how you’d like these to look moving forward. Who do you see running your business or farm when you no longer can? Will you divide your property between children? If so, how can this be done evenly, especially if some children wish to continue within the business while others plan to move on?

Start by writing something down, even if it’s a rough proposal in the early stages. Things to consider can be:

  • Building assets outside of the business, even if you start small – over time this will be useful (compound interest).
  • Maintain adequate insurances, life and general – protect your business by financially protecting yourself.
  • Have conversations with those around you: who will buy your business when it comes time to
  • sell?
  • Get proper plans and legal documentation drawn up. Too many handshake agreements won’t cut it if things go south.

Start preparations today: don’t leave it till the last minute

Succession planning, especially when it involves family members, can be a delicate area. Decisions made will significantly impact others, so it’s important to align your expectations by having open conversations. By starting discussions today, you can communicate your ideal outcome while keeping others’ priorities in mind.

I once met with a client who had committed their entire working life to running a business, but due to lack of planning they retired with nothing. By leaving key preparations to the last minute, the client was unable to find a buyer in time, resulting in them retiring with only an age pension. It was sad to see them forced to abandon their life’s work with little to show for it.

An exit plan, if handled well, can support a comfortable future, allowing business owners to make the most of their wealth. Starting early allows preparations to be put in place, while keeping all key stakeholders informed. A financial adviser can work with you to piece together a plan, taking your individual circumstances into consideration and maximising your financial wellbeing.

How to create protection during unpredictable times

One thing that 2020 proved is just how unpredictable life can be. Sudden lockdowns and border closures have highlighted the importance of seeking financial advice to prepare for the unpredictable.

One way to protect your business is by examining your cash flow and investments, and looking into other revenue avenues. By building out your investments, you can create a safety net in case things take a downwards turn. Ideally build wealth outside of the business, which can then be redeemed in the case of a forced business closure.

Protecting your cash flow is another key area to focus on. By doing so, you’ll be able to cover basic business expenses. To do so, consider what you can forgo in the short term to keep cash flows healthy.

Opening new revenue streams is another way to prepare for the unpredictable. Perhaps you can establish an online presence for your business. In specific circumstances, such as an extended lockdown, this may be key in keeping your business running.

By having strategies in place and building assets outside of the business, you’ll have access to other capital and be prepared for the unexpected.

Find a trusted adviser

As a business owner, you often have numerous responsibilities competing for your attention. It can be difficult to focus on future plans when your day-to-day business requirements are seemingly endless.

Part of my role is to encourage clients to prioritise and protect their long-term plans, so these aren’t forgotten or pushed aside.

I recently visited an older couple at their winery and I got talking with their adult son. He was eager to discuss plans for the business when his parents could no longer work. The challenges brought about by 2020 had allowed him to reflect upon the difficult decisions he’d been putting off due to more immediate business demands. My visit acted as a catalyst, encouraging him to consider the next steps in a succession strategy. We started working together to manage this process – working with an accountant and solicitor to bring about his desired outcome. In this case, I took on an almost project management role, aligning the necessary pieces to suit his financial needs.

It’s important to find a trusted adviser who can assist you along the road of succession planning by asking you the tough questions you may otherwise put off.

By taking a personal approach, an adviser can guide you towards a suitable solution – one that meets your personal goals, as well as those of their business.

Your exit plan may change over time and your succession preparations may need to be reconsidered. Even if your situation changes, forcing a change in direction, being prepared will set you and your business up for success.

Disclaimer: This information is of a general nature and has been prepared without taking account of your personal objectives, financial situation or needs. Before acting on the information, you should consider whether the information is appropriate for you having regard to your objectives, financial situation and needs. Taxation laws are complex and their application may vary according to investors’ specific circumstances. ANZ recommends you seek your own independent tax advice to address your personal circumstances.

This article first appeared in issue 34 of the Inside Small Business quarterly magazine