Australians unprepared for succession

Bill Hovey asks just how prepared are you for your exit and succession from the business?

Each year, linchpin succession management undertakes a proprietary survey as part of a planned longitudinal study.

The proprietary research undertaken over the past four years and other industry association research completed in the last 12 months provides some interesting observations for business owners.

Over the past four years, we have surveyed 1,736 private and family businesses and professional partnerships. These have been NSW-based, though not limited to NSW operations and cover a variety of industry sectors. More than 15 percent are turning over less than $1 million, whilst 26 percent are turning over between $1 million and $3 million. Significantly, few micro-businesses responded to the broader surveys.

Who is prepared?

• 27% of Australian family and private business owners have sought external advice concerning the succession process; just under 50% of these have a documented plan.

• 10% (of the total) have consulted their accountant; 5% (of the total) have consulted their lawyer.

• 65% are prepared to pay a premium for high quality up-front and ongoing advice, which takes them towards a successful succession and exit.

Issues and complexities

• 67% believe that dysfunctional relationships within the business and/or stakeholders will provide significant barriers to successful succession.

• 84% admit to a gap between the realisable value of their business and their ‘aspirational’ value.

• 64% are concerned that they do not have the ‘right people’ in key positions to enable a successful sale.

• 78% are committed to allocating time and resources (people and financial) in order to achieve a successful succession.

It is apparent that succession and their eventual exit from their businesses are becoming increasingly important for many business owners in Australia.

However, more than 80 percent of owners are unprepared for what for many will be the most significant business event in their working lives. This lack of preparation is illustrated by the following:

• confusion about the real options available to them;

• the extent to which their businesses are ‘under-done’ in relation to direction, disciplines, and state of readiness which should be in place to ensure the owners’ smooth and comfortable exit; and

• a lack of clarity and certainty about where and from whom succession and exit advice should be sought.

These conditions exist – and seem to be allowed to continue to exist – even though more than 80 percent of owners recognise that there is a significant gap between the ‘aspirational’ value of their business and today’s realisable value. Many of these owners appear to be content to delay their start on their succession and exit strategy. Yet the narrowing of the gap between the realisable and the ‘aspirational’ cannot be achieved without effort and time.

Nor can a truly satisfactory outcome be achieved if all of the emphasis is on crafting the transaction. The personal, emotional, relationship, and intellectual agendas need to be just as well crafted and dealt with contemporaneously or they can become potential ‘icebergs’ on which the entire exit and succession could founder.

The real tragedy is that this reflects a preparedness of business owners to neglect what might well be one of their most significant financial assets, and will see them disappointed by the capital value they will take from their business upon their exit. 

Bill Hovey is CEO of linchpin group australia (www.linchpingroupaustralia.com) and has more than ten years’ experience advising and counselling business of all sizes, across diverse industries, in all aspects of business succession.

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