Decided you need a business succession plan but don’t know where to begin? Here are some steps to help you manage the process smoothly.

Prioritising your succession strategy

Every business owner should have a succession strategy. Even if you’re not ready to sell up or pass it on to the next generation, it makes sense to know how you’ll go about transitioning out of your business when the time is right.

Not sure where to start? You’re not alone. NAB Transition Business Moments Research report1 shows that 69 per cent of small and medium business owners are in a similar position. When you’re juggling the demands of running your own enterprise, thinking about the way out can be low on your To Do list. But while having an exit strategy in place may not be your most pressing priority, circumstances can change quickly. If you’re not ready to respond, you may find yourself forced to make decisions suddenly, which could leave you at a disadvantage financially.

It takes time to organise a successful business transition or exit. Here are some steps to follow as you develop your personal plan for selling your business or handing it on to the next generation.

1. Understand your options

Is yours a family business that you’d like to keep in the family? Or has your plan from the beginning been to unlock the equity in your enterprise by selling it to a third party?

Other ways to exit your business include:

  • Arranging a management buy-out. Having a stable leadership team that’s familiar with the way your business operates, can make this an attractive option. Even more so if they’re in a position to acquire its operations and assets.
  • Selling to venture capitalists or private equity partners. Professional investors are more likely to want a stake in your operation – or to acquire it wholesale – if you offer an innovative product or service with strong prospects for growth.
  • Stepping away from day-to-day management but retaining a share of ownership. For business owners who’d like to ease out gradually, as others ease in, this may be the ideal way forward.

Exploring your options and identifying the one that’s best for you, should be the first step in your succession planning process.

2. Set your goals

Your business is likely to have been a major part of your life. Whether you hope to become significantly less involved or make a complete exit, it’s important to have an idea of what you’ll do next. Defining your goals will help you plan out your next steps.

Things you may wish to consider include, how soon you want to transition out, whether you’d like to stay involved in some capacity or make a clean break, and the sort of post-transition lifestyle you hope to enjoy. For example, post-transition, will you be starting or buying a new business, entering into a new partnership, or retiring?

3. Value your business

Whether you’re planning to transfer ownership to family or sell your business to a third party, you’ll need to work out what it’s worth. Many owners think they already know, based on financial statements and suggested multiples.

However, a more precise business valuation from an independent assessor can inform your decision-making. This can help make sure you get the maximum return on both the time and money that you’ve invested in your enterprise.

4. Bring others on board

Once you have an idea of how you’d like to proceed, it makes sense to share your succession plans with your family and your management team. Both groups are likely to have questions and concerns. Documenting your discussions and keeping the channels of communication open, will help you manage any uncertainties and ensure everyone is on the same page.

If you’re planning to transfer ownership to your children, but don’t believe they’re ready to take on leadership roles then you may want to develop a plan to prepare them to do so.

5. Call in the experts

Transitioning out of a business can be a complex process – expert advice will help to make sure your plan is properly executed, when the time comes. This is important, even if you’re selling or passing ownership to family members. Deals done on a handshake or arrangements that are not properly documented, can lead to misunderstandings and issues in the future.

To help the transaction go smoothly, it makes sense to seek help from professionals experienced in business transition; this could be a lawyer, accountant, broker or other adviser.

6. Reassess your wealth management plan

Does your business represent a significant proportion of your personal wealth? For many business owners, the equity in their business is their retirement nest egg. If this is the case for you, it’s important to consider where those funds should be directed once they’re released from your business.

This may involve some big decisions, and this is where professional advice can help you understand your options. Your age and stage in life are likely to have a major bearing on the choices you make. A financial adviser can work with you to develop a plan to invest your equity, protect and grow your asset pool, and secure your future.

7. Plan for the unexpected

The best laid plans can go awry. Unforeseen or sudden life changes, such as illness, injury or family issues, can mean you need to exit your business more quickly than you’d planned to. It’s under such stressful circumstances that a well-thought-out transition plan can reveal its worth – with such a plan in place you’ll have the breathing space you need to arrange a smooth transition and get the most value out of your business.

In practical terms, that may mean having personal and business insurance. Access to funds when you need them most, means that in an emergency, it’s less likely that you’ll have to close your business down or sell it for less than it’s worth.

Important information

1 Source: Quantum, NAB Transition Business Moments Research report, Sept 2018.

The information contained in this article is correct as of August 2019 and is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.

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