Do you have an exit strategy?
It may be hard for you to imagine your business without you, but that’s exactly what you need to do. In simple terms, a succession plan is a blueprint for you to exit your business. Business succession planning is an inevitable undertaking. If you control and manage it, you’ll get the best outcome.
A good succession plan covers:
- when you plan to exit the business
- who the business is being sold to or who will take it over
- whether you choose to sell all of the business or sell down gradually
- any tax and legal implications.
Macquarie’s 2013-14 Insurance Broking Benchmarking Report3 highlighted some interesting insights into what sort of succession plans are in place. The report revealed that 30% plan to sell to another firm and 29% will offer staff the chance to acquire equity, while 25% are planning on family succession. However of those firms without a succession plan, 16% said it’s because they have no successors and 7% describe it as too hard.
So how do you identify what succession plan is right for you and your business?
Share your success
Succession planning does not necessarily mean selling your business. Could your successor come from within your firm?
“Think about the people who have helped you build the business and what role they may want to play in the future,” says Gonano. “They could be interested in buying part equity now, so you can gradually step back but still maintain an income stream and equity interest.”
This is where your business structure and financing facilities can make the difference.
“You may assume your staff don’t have the funds to purchase equity outright, but that doesn’t mean you need to sell the whole business to someone else,” he explains. “For example, Macquarie can use selected business assets as security to fund new shareholders into the business - and ensure an income stream for business owners.”
This gives you more options to work in the business the way you want. It also provides continuity for staff and clients.
Your Macquarie relationship manager can also help you explore your succession planning options, including funding options, tax implications and making the most of any financial proceeds.
Checklist for sound succession planning
- Start planning early – begin with the end in mind. Set a timeframe and align your personal and business goals
- Identify your successor – this could include selling to co-owners, an external party or to someone working in your business
- Identify the talent within your firm – set clear career plans, develop their leadership skills and make them feel valued
- Know what it’s worth – get a realistic, independent valuation of your business
- Make sure your financials and operations are in order – your accountant should carry out a financial health check, and it may be worth having external due diligence done on your processes, procedures, documentation, job descriptions and management systems
- Watch out for tax implications – get advice on maximising after-tax payments from the sale of your business
- Decide on your future role – if you’re not ready to let go completely, define your role and make sure you’re rewarded appropriately.
Watch this video on how to recruit and retain the best staff for more succession planning insights from small business owners.