You may just be getting started or perhaps you are at the top of your game. You are not intending to leave or hand over your business for years to come. How could this possibly be of relevance to you? If the success of your business is not dependant upon your contributions then, by all means, stop reading. However, if you are responsible for adding any value to your business, please ask yourself; If I left my business today how long would it last if I couldn’t come back? Is there someone else in the business I couldn’t survive without? My family relies on the business income. How long could we survive without my pay cheque? What would it cost to replace me? Can I be replaced?
If a business founder is not sufficiently prepared for their personal exit through a funded, planned succession strategy, then such an event is likely to leave the business in a precarious position. Without putting a concrete strategy into place for succession, there are still many ways you can prepare yourself for the unexpected.
Overall, having the right funding arrangements in place to protect against unplanned exits of essential staff and owners is key to surviving unexpected events. To achieve a smooth succession that results in a strong chance of the business flourishing across multiple generations, it requires some serious honesty and commitment from all parties involved to deliver a successful transition. Most importantly though, it requires forward planning and a clear set of actions to create the potential for success.
Communication is integral to the list of key attributes required in succession planning. Both you and the successor need to be able to communicate honestly, directly and respectfully to one another to ensure everyone is clear on the plan of action. Common goals should be shared by those involved. It is important that the goals are synonymous with achieving financial objectives that ensure both generations are financially rewarded for their efforts. In addition, attention should be given to ensuring that the leaving generation is sufficiently reimbursed for their life’s work and the outcomes they have achieved.
Here are Progressive Wealth Solution’s tips for preparation:
- Start Early; the transition requires a number of objectives to be achieved. It doesn’t matter whether the transition happens in ten months or ten years, the sooner you start preparing, the greater the chance of success. Starting early allows time to select and groom the right successor and to skill that person to lead the organisation into the new generation and beyond.
- Prepare an Action Plan and Timeline; Like any change project, a succession plan should be defined in terms of the objectives that need to be met for success. Each key objective and the criteria for that objective should be discussed and agreed by the organisation and its advisors. All elements of the succession should be discussed and defined well ahead of the actual events. Clear objectives and deadlines assist in overall clarity throughout the process.
- Close attention should be paid to three key elements; the successor, the financials and the strategy. Everything from the skills and attributes of the successor to the training and development required to prepare that person should be defined. Whoever is chosen as the successor should be provided all the support and education required to be prepared for the role ahead. Being clear on the financial rewards available and the timing of those rewards is an important start. Most importantly the expectations of all involved and the KPI’s that need to be met to deliver on the financial objectives should be clearly defined. The strategy defines how the business is going to evolve and adapt to improve its potential for success through the generations. The preparation and planning for that needs to be agreed to ensure the organisation continues to pull in the same direction throughout and post the transition.
In addition to the above issues and concepts to manage, we recommend that you consider the following components as part of your succession strategy:
- Board of Advice; If your business doesn’t currently have a board of advice, we suggest implementing one. No matter what your business stage the board of advice brings external accountability to your management team and ensures you keep focused on priorities. In terms of the business succession process, outside experience can help maintain adherence to the succession plans and assist in overcoming any challenges that arise.
- External Mediation; Involving your accountant, financial advisor or family lawyer in the process is a valuable decision. It helps if these individuals are respected by both sides, however, often they will be seen as more attached to the founding generation. As a result it is often better to bring in a completely independent mediator to bring the generations together on common ground.
Succession planning is challenging but, professionally managed can create a legacy that aligns with the dreams and goals of the original business owner, whilst also passing on the business’ potential and wealth to be developed by the next generation. If you are seeking any assistance or information with your succession planning, contact us at Progressive Wealth Solutions.
If you are looking for professional advice, free of commission and free of conflicts, please contact us, or give the team a call on 07 4783 5151.
Progressive Wealth Solutions is a Corporate Authorised Representative No.472911 of Keystone Partnership Pty Ltd ABN 22 169 650 720, Australian Financial Services License (AFSL) No. 466