Accountants often talk about internal succession planning (or even succession planning more generally), but what is it?
Succession planning is finding a way to transfer the skills and ownership of your business to enable you to phase out of your business and enjoy retirement, or other lifestyle preferences.
Succession planning can be via selling your business to an internal successor (for example an employee or family member) or via a full sale approach. But how do you get started?
- Planning your objectives:
- Is your priority legacy or the highest price?
- How saleable is the business now?
- What can you do to make it more saleable?
- Understanding your business position:
- What is it really worth to a third party?
- Can the profit of the business be used to pay debt associated with acquiring the business?
- What skills does the business need to transfer? Licences? Expertise?
From here we can help you determine if there are people in your business who are able to be internal successors. We are referring to people who can take on key roles and financially buy your business from you – usually over time. If there are internal successors, we can work with you and the successors to develop a succession plan to transfer the ownership of your business – both in regard to equity (and remuneration) and skills.
If you do not have an internal successor, and depending on your timeline, we can help you prepare information to present to a potential purchaser, introduce you to a broker, or discuss your options to scale down your business. If you have more time, we can help you make your business particularly attractive to a purchaser.
The main reason you need to start succession planning in your business is that succession planning takes time. We have seen multiple heartbreaks where well-meaning business owners have pursued succession planning to have it all fall apart at the end.
One intended successor died of bowel cancer before he turned forty. Another moved back to the city for family reasons. A family member due to be the successor changed their mind. At this stage, the business owner has almost transacted on their business. They are tired. They have mentally checked out of their business. And they want a result.
By starting a few years out from your planned retirement date, you’re giving yourself time to pursue internal options, handover your expertise, and go to plan B or C if required. There is also an argument for bringing key staff into ownership of your business years before retirement in order to reward and retain them, but that’s a whole other blog post.
Talk to your Accru adviser today to see how we can help you plan to successfully exit your business.