Succession involves making sure the success of your business continues through a timed change of ownership and control. Who will take over the business, when will they take over and how they will they take over the business should be outlined clearly in a succession plan.
Many owners feel daunted by the idea of handing over the reins of their business to someone else. If you need help dealing with the emotional effect of succession and the practical aspects of your succession plan, go to Family Business Australia.
Planning your succession
Make your succession plan way before the time you actually leave your business. Based on research, succession can require over two years to plan. Preferably, your succession plan should be included in your general business plan and be looked over regularly. Make it flexible enough so you can change it anytime there is a change in your situation.
Picking a successor
Identifying a likely successor should be your first priority. Typically, your succession plan can take the form of either:
A family succession plan, which entails creating a trust, selling or gifting the business to relatives
A non-family succession plan, which entails a management buyout, or selling the business to employees or your co-owners
Things to include in your succession plan
Generally, all financial, legal and operational plans for exiting your business should be addressed in your succession plan. The particulars will not be the same for each business, but you can start the first step by answering the following questions as you create your succession plan:
- When do you intend to exit the business?
- Will you be fully out of the business or will you still participate in some areas?
- What are the duties of your successor?
- What are the training programs you will set up for your successor(s)?
- What are the dangers that can result from succession?
- What will be the state of the business when you exit? Who will take on major positions?
- Are the contracts, work agreements, etc. of the employees all updated?
- Are all of your plant and equipment working properly?
- Have you discussed the succession with major suppliers and customers?
- Have you thought about privacy and intellectual properties policies?
- Are you gifting or selling the business to your successor(s)?
- How much is the value of your business or your interest in the business?
- What are the tax and monetary effects of the succession?
- What insurance policies have you purchased in case you become disabled, die or injured?
- What’s the amount of income you require to retire/exit the business?
- Will the legal structure of the business change after you exit?
- Do you require legal papers that contain the provisions of the succession?
- Do you have to modify/transfer any permits, licenses or registrations?
Talk to a professional business adviser when organising your succession plan. It is also helpful to talk to your family and important people in the business, particularly your potential successor(s).
Applying your succession plan
The implementation of your succession plans involves outlining a practical timetable to achieve major milestones. The things that should be included in your milestones are:
- Naming a successor
- Business housekeeping, such as important dates for legal and financial requirements
- Successor training
- Phased in hand over of responsibilities
- Final transfer
Ensure that this timeline is conveyed to all those involved in the business so they are aware what’s happening and when. It can be emotional and difficult when you step back from your business, but it would be easier to let go by setting up clear targets and time frames.
Contact PJS Accountants to help you organise your succession plan. We provide a full range of services including accounting, taxation, business improvement, superannuation, business valuations, asset protection, succession planning and bookkeeping. We have been dealing with local businesses in Capalaba, Cleveland and the Redlands for over 30 years. Our team is always available to take your call and help with your business needs.