Owners of any size or type of business must have a succession plan in place for the inevitable day when management and control is transferred to someone else. In this first of our four-part succession planning series, Charisse Gray examines alarming statistics in the small to medium sector.
You may not be planning to leave the business for some time, but ill health or unforeseen circumstances do happen and your exit from the business may not be by choice. Your departure from the business is not a question of ‘if’ but ‘when’, and succession planning helps provide you with some say in how the future unfolds for both you and the business.
A well-planned succession strategy is a prudent measure for taking control of the inevitable and should be a key part of your business’ growth strategy and risk management process. Planned well in advance, your strategy should be clearly thought out and articulated, documented, regularly reviewed, and attainable. You must set a realistic timetable with measurable milestones along the way and stick to them.
This plan should ‘shockproof’ your business against the unexpected, ensuring its continuity and future success long beyond your management and the current operation and ownership structure. It will enable you to leave behind a legacy of a profitable and sustainable business, a strong brand, solid strategic positioning, an untarnished reputation, a committed team, and a good work culture. This legacy will get you a premium price for your business and attract the right successors.
A well-structured succession plan:
- • attracts and retains suitable staff through development and nurturing strategies
- • ensures a continuing sequence of qualified people to move up and take over when managers and key
- people retire or move on
- • ensures the business’ value is protected and maximised by demonstrating a clearly defined viable future
- • establishes and progressively builds up equity
- • ensures a smooth transition with less likelihood of disruption to operations
- • clarifies authority and decision-making roles
- • maintains accountability and ensures stability.
While many SMEs appreciate the importance of succession planning, many have relegated it to the ‘too-hard basket’. According to Bill Hovey, CEO of the Linchpin Group Australia and managing director of Linchpin Succession Management, ownership succession planning is "complex, emotionally confronting, and carries high penalties if it is deferred. It’s confronting because it deals with the fundamental question of the inevitable mortality of the owner, and potentially of the business."
A recent survey by ABL State Chamber reveals that more than 55 percent of business owners do not have a succession plan in place. Of these respondents, 68 percent have not been able to identify an appropriate successor. Among those who have identified a successor, less than half of those potential successors have agreed to the plan.
More than 70 percent of Australian businesses are family-owned and are typically small to medium in size. In the next two years in New South Wales, the predicted glut of businesses with no identifiable successor equates to 25,000 employing businesses.
This research is supported by the KPMG and Family Business Australia Survey of Family Business Needs 2005 launched in conjunction with Deakin University.
This survey found that 57 percent of respondents indicated that they would retire within the next 10 years– 68 percent said they had not chosen a successor and 34 percent of family businesses surveyed had no formal succession plan, with 27 percent undecided about their exit strategy.
Kevin MacDonald, CEO of ABL State Chamber, advises: "A succession plan is critical if you are planning on retiring in the next five to 15 years and expect to fund your retirement by selling your business.
"A lack of early planning and shifts in market forces could well see your hard-earned wealth diminished by being one of a surplus of businesses on the market at the same time. Don’t wait, act now."
* Charisse Gray is senior business writer at ABL State Chamber.