In brief - An alarming 70% of business owners do not have a business succession plan
Early death, permanent physical disability, terminal illness or loss of mental capacity are all terrible fates, but they can befall anyone regardless of their age or occupation. For those of you who have spent many years building up your business, it is important to ensure that should bad fortune of this nature strike, a strategy is in place to ensure that whoever succeeds you in running your business doesn't spoil your legacy.
Business succession plans enable the smooth transfer of leadership and ownership
Planning for business succession is apparently not a high priority for business owners. According to recent reports, your average SME owner is 56 years old and planning to retire sometime in the next ten years.
Alarmingly, up to 70% of SME owners do not have a business succession plan, presumably taking an ostrich-like approach to the consequences of their own inevitable demise. Not only will this oversight leave your would-be successors in the dark about how the business should be run when you are no longer around: it could have profound consequences for your business and unravel years of hard work.
To avoid this, it is imperative that you create a business succession plan which enables the smooth transfer of leadership and ownership to a suitably prepared next generation. The aim is to ensure that your business has a clear strategy and framework for its successful operation well into the future.
Who should you choose as your successor?
The creation of a business succession plan requires careful thought about who will take control of the business and how and when this happens. However, in the course of making these kinds of decisions, you may have to navigate a minefield of emotions such as envy, insecurity, resentment and disappointment. The "golden child" you thought might carry on the family legacy may not wish to make a long-term commitment to the business. Worse, you may not be able to identify a viable successor at all.
This doesn't mean you should shy away from preparing a plan. Far from it. Through lack of careful planning, 70% of family businesses do not survive into the second generation. Of those that do, just 12% are still viable into the third generation and merely 3% operate into the fourth generation or beyond.
Five things you can do to devise a plan
Get thinking. What sort of arrangement gives your business the best chance of succeeding well into the future? Will you hand the business on to a family member or trusted employee? Who do you have in mind and why?
Be realistic. Do your potential successors truly have the business acumen and real interest in the business to do the job, or are they distracted by other pursuits? Consider the strengths and weakness of candidates carefully and objectively before you tap them on the shoulder.
Engage. When you have a strategy outlined, test your likely successor's interest and seek their input. Engaging them in preparing and implementing a succession plan will ensure that everyone has a common understanding.
Teach, don't preach. Once you have a plan in place, get your would-be successors more involved in the company. Sitting back and telling stories about the good old days might not have much practical benefit for the business. Take time to teach them the ropes.
Dial an expert. There are numerous structures available to protect both your business and your legacy. A professional advisor will be able to assist you to identify which will work best for your business. You'll also need tax advice and to ensure that your personal estate is in order and aligned with your succession plan.
Giving serious thought to the future of your business and your exit from it at an early stage will ensure your legacy is not only protected, but championed by your successors well into the future.
This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2021.