How to get succession planning under control

Select and focus on five key initiatives for the next three months, and measure the benefits achieved and prepare for your next strategic succession planning cycle.

Succession planning will help you keep focused on identifying key value drivers to maximise your business investment and effectively manage risks, weaknesses or threats. So what exactly is it? It’s a strategic process that allows you to transition your equity ownership by way of whole or part-sale to fund your ongoing income during retirement.

When to do it

Succession planning should not be separate from business planning. They should be linked and started early to prepare for the long term. You need to assess your current position, set out what you want to achieve, and develop a plan for getting there.

A new financial year is a great time to reflect on your progress towards achieving your retirement goals and provides an opportunity to identify new strategies for optimal growth, profitability and performance.

Working “on: vs “in” your business

The first step is investing time to work on your business, reviewing key business performance measures and industry trends:

  • Review financial performance including key performance indicators and compare with other successful and leading businesses in your industry – your accountant can help you with this.
  • Review key trends in relation to government, industry, technology, staffing and resources, client needs, purchasing behaviour and innovation.
  • Identify opportunities, strengths, weaknesses and threats.

Step by step plan

Plan ahead: identify and prioritise key initiatives for the next 12 months. These should be focused on improving profitability, performance and increasing the equity value of your business.

Some key initiatives for succession planning include:

  • Thinking about when and how you might want to exit your business. Options include bringing in partners, selling, closing up, or staying invested but distanced. Have documented agreements in place.
  • Reducing reliance on your own personal exertion and knowledge, investing in training and developing key staff, introducing an effective structured team and introducing rewards to encourage performance improvements.
  • Establishing customer relationships linked to the business and its brand; not just individuals.
  • Developing systems and processes to reduce reliance on key people within the business.
  • Reducing potential threats by increasing the range of services offered, selecting the right service mix to maximise profits and identifying cross-service opportunities.
  • Effectively using debt to provide capital to expand and grow your business, and seeking professional advice during the process of new business acquisitions to identify potential risks and financial requirements.
  • Reviewing the gap between the current business value and where it needs to be for you to retire. Consider which steps in this article will help you maximise your business value.
  • Making it easier for a purchaser or investor to finance goodwill. This means providing evidence of a comprehensive business and succession plan, financials to support future maintainable profits and an accountant report, which assesses key risk and value drivers for the business.
  • Preparing your estate planning. Having a professional will, powers of attorney and superannuation binding nominations is a big part of succession planning.
  • Maximising the use of available small business capital gains exemptions. Structure the sale contract to direct the proceeds of sale to an appropriate structure (superfund, family trust, next generation trust) and to maximise after-tax returns.

Break it down

Take charge of your business to ensure it’s well positioned for the road ahead. Select and focus on five key initiatives for the next three months, and measure the benefits achieved and prepare for your next strategic planning cycle.

Too many times we see business owners retire who haven’t spent the time during their career to determine how they will fund their retirement years. If you start early, you can make the most of your business so it can be a big nest egg for your future.

Ashley Quinton, Director, Prosperity Advisers Group

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