Succession Planning and Management Blog

Tip # 1:  Have a strategic business plan

#4 Have a mentor, coach or peer to hold you accountable

#5 use a weekly top prospect list

#6 eliminate all sources of negativity

#8  just ask questions

#11 perfection = procrastination

#21 delegate all non dollar productive work

#22 daily accountability

#23 be a coach to others

#24 set diary – for example – pre 8am emails , 8.30 – 9.30 phone calls/messages, 10am sales meetings etc

58 % are first generation, 31 % are second generation and 11 % are third to fifth generation.

47 % are tertiary qualified, 91 % are married and 11 % are female

27 % are wholesale / retail, 24 % are in manufacturing, 11% are construction and 4 % are technology based.

The average age of family business owners is 55 years and …

61 % would seriously consider selling if approached   31 % do not have an adequately funded retirement program.

Based on our review of the PWC Business Barometer and the key issues surveyed relating to business succession planning the following key points can help show why succession is such a big issue for business owners :

For those owners looking at an exit in the next 2 years 27 % expect to sell to a competitor and 19 % to a third party. Interestingly 17 % ( up 6 % from a year ago ) are looking to sell equity to current employees. And yet still 54 % have no succession planning / handover or exit arrangements in place.  Given the time frame this process takes this is the same as saying you are going to auction your home but never appointing an agent and marketing the property.

The questions posed by the report are perfect for business owners:

How can I achieve maximum return on the investment I’ve made in my business, while ensuring the new owners – be they family, employees or external to the business – are positioned to unlock its potential for further growth?

What succession planning, handover or exit arrangement can be put in place now to ensure my business continues to grow when I leave ?

12 % of business owners now intend to put in place some kind of Employee Share Option/Ownership Plan – ESOP ( a plan whereby employees own equity in the business ) mainly to position the business as a more competitive employer and attract and retain key staff. ( 50 % said securing the right talent / finding competent staff was the number one issue ) and retaining them was also highly ranked with 16 % . In our experience with clients both of these outcomes can be delivered via an effectively designed ESOP.

There has been much recent talk of the ageing population and with it naturally comes the ageing of business owners. This has led to a dramatic increase in those seeking to exit their businesses both now and over the next 12 years. What is important to realise for business owners is that business succession planning is not about leaving it until the last possible moment and then determining the most suitable exit. I had a great discussion at a seminar last week about the fact that professional investors (private equity firms, angel investors and venture capital firms) all require detailed information about the exit strategy before they enter the investment. As amateur investors ( small business owners) we are often so concerned about the entry – funding, IT, personnel, premises, set up, marketing etc. etc. that we don’t have time to properly plan to the exit. What is vitally important therefore is that as we start to prepare for an exit we allow sufficient planning time to design the most suitable strategy and more importantly to allow us time to implement the succession plan properly.
We are seeing a number of business owners where the amount they require for retirement is dramatically more than the real value of their business either because they’ve never had the business value determined or because their own expectations of value are quite different – the solution is simple – time.

We are currently working with a number of clients where we have a 5 to 7 year exit horizon – this allows us to strategically design the most appropriate exit strategy and more importantly introduce a succession planning coach who will manage the implementation of that strategy over an extended period to ensure the owner can exit the business extracting the value they actually need and deserve. Business owners who wait until they are 64 years and 9 months old and simply list the business for sale through a business broker or in the Sydney Morning Herald will never extract the value they potentially should or could if the exit had been strategically planned properly.

To ensure you maximise your exit value as part of any business succession or exit plan  – ensure you start the process at least five years before you expect to exit.

We have recently revised upward a number of business valuations where over a period of time and some dedicated resources focused on key recommendations from our initial review we have been able to decrease risk areas within the business. Our process identifies 24 areas of potential risk for business owners and we can then identify those that are not adequately managed within the business and make recommendations about implementing the appropriate changes to reduce the risk. The risk reward ratio is important in business valuation and if we can reduce the risk we can increase the valuation. We have several client examples where working with a team over a 12 to 24 month period has added more than $500,000 of increased value into a business.

Some of the key risk areas which produce this kind of reward are reducing business dependence on a key person, locking in the key staff throughout the business via use of employee equity plan and focusing on business financials to reduce risk (often including debt and gearing levels but also often examining product mix and profitability ).

Whilst this project can take several years the increase in sale/exit value for the business can be substantial and provide funds required for retirement or exit of the business owner.