Even if you’re not planning to retire for many years, it’s still important to have a strategy for exiting your business. According to a recent report undertaken across more than 1,200 Australian SME businesses, 35% of business owners have no ultimate exit plan.
The importance of a succession plan
Let’s face it – nothing in life is permanent and one day your life as a business owner will come to an end. This may be due to retirement, but other factors to consider are ill health, accident, death or simply because you’ve decided to move on to something new. A well-structured succession strategy helps mitigate a wide range of risks and ensures, among other things, the future stability and success of your business. While all succession plans vary in complexity and objectives, there are some key questions all business owners should consider.
- Who will your successor be?
Will your successor be a family member, a business partner or someone external to the business? It’s important that the potential successor is provided with appropriate training and given a reasonable time period to learn the main aspects of the business.
- What is your exit strategy?
Will you retire altogether or continue to be involved on a part-time basis? If the latter, what will your involvement entail and for how long?
- What are the financial considerations?
What is the current market value of the business? What is the minimum sale price required and who will receive the proceeds? Are there any retirement payments required for retiring owner/s and what are the terms? If you are in a partnership and you plan to arrange a buyout, what is the value of your share?
- Will there be any key personnel changes?
If you have employees, you may need to reshuffle key personnel. It’s important to write a clear job description for each position, including the skills, qualifications and training required. You should also list who you expect to be in the position, or if it will be vacant after the reshuffle.
- What registration transfers are required?
Consider ABN, GST, domain names, intellectual property rights, licenses, permits, subscriptions, memberships and so on.
- What are the legal and tax requirements?
Documents will need to be drawn up dictating the terms of the succession and contracts may need to be modified or new ones drawn up in the event of the succession. Also consider what taxes are payable in the event of a transfer or sale.
- What are the partnership arrangements?
Do you have a buy/sell agreement in place? What are the terms? Will the remaining partner/s buy your partnership share or will it be open to external partners or family members?
- What are the insurance implications?
What insurance policies do you currently hold in the event of disability, death or injury? How will the proceeds be distributed?
- What are the risk factors?
What are the risks to succession and what contingencies do you need to put in place?
Think of business succession as a process rather than an event and take action now with a view to the longer term. YML Chartered Accountants can help you develop a robust succession plan that will help ensure the long-term success of your business.