As you ease into retirement from the business you set up and have led for the best part of your working life, a business succession planning strategy is necessary to ensure the smoothest transfer of its leadership.
Family Business Australia’s 2021 survey shows that family-owned businesses make up about 70% of all businesses in Australia (and New Zealand) and employ half of the workforce. It’s a significant proportion of the economy. Whether you lead a family business or a listed one, we look at business planning and offer six succession planning tips to help with your exit strategy.
What is a business succession plan?
A business succession plan is a document that outlines the strategy and unpacks the process for the successful handover of leadership responsibilities to the next generation or business leader.
The plan not only outlines the actual handover process but deep dives into skills analysis, personality profiling and a proactive knowledge transfer undertaking of a company’s governance procedures, finance and operational obligations.
The process of business succession planning
Handing over a business is no easy feat. it requires a time-based focused process, breaks each business function by line item, and unpacks the compliance obligations in detail.
Here are our top six business succession planning tips to build your strategy around.
Objectives
First things first. Like a business plan, a succession plan should define clear objectives. Succession planning aims to maintain consistency and keep the business on course. If you have built this business, you no doubt intended it to keep supporting you and your family long after you’ve left the cockpit. You will have ideas and tried and tested strategies that have formed the existing business framework.
You will need to unpack how you will identify your successor and how their expertise will grow and sustain the business – regardless of whether or not the successor is a family member.
Clearly outlining the objectives of how the succession plan will align with the business is a necessary stake in the organisation’s foundation to keep all succession planning efforts attached to.
Risk analysis
This is not the easiest part of succession planning as it requires a deep dive and honest analysis of the risks and issues encountered en route to the new leader’s appointment. As a family, this task could prove trickier.
Risk analysis questions should include stakeholder concerns, possible responses and financial implications of the entire succession planning process – from skills development and marital status to health checks and compliance approvals.
Leadership profile
Robots will never be able to replace leaders, so it is essential that you select the right person for the job.
One of Richard Branson’s famous quotes, “When it comes to business success, it is all about people, people, people,” rings true in any succession strategy. A leader must possess the necessary interpersonal skills to manage a team of people from diverse backgrounds, cultural preferences and value systems.
A good leader should transcend these differences through effective leadership characteristics and effective communication strategies that show compassion and empathy for the needs of the people within the organisation.
Timeframe
No plan could ever be complete without a timeline. You undoubtedly have an idea as part of your retirement plan about when exactly you’d like to put your proverbial feet up.
A timeline will act as a checkpoint in the business succession planning process. It is crucial to time-base each tactic. This encourages accountability and ensures the project moves at the correct pace and issues are identified and rectified at each step of the process.
Stakeholder engagement
This is also a critical part of the business succession planning process if other members or investors are involved in your business. Unhappy stakeholders and investors could be detrimental to the future of the organisation.
Keep your stakeholders and board members informed each step of the way. Share a high-level overview of the plan – the leadership shortlist with key attributes that you believe will help take the business forward and the timeline.
A regular internal newsletter may be a way to ensure the channels of communication remain open during the succession planning process.
Transfer strategies
Create a dedicated plan for each business area. Select a team of people within each department or transfer strategists (internal or external) to help drive this part of the succession planning process.
As the current business leader or owner, you may have some financial ‘skin in the game’ with invested capital or assets.
Whether you want this paid out to reinvest in another retirement investment plan or share portfolio, or you plan to use dividends to support a retirement income plan, it is important that these are included in the plan along with settling outstanding finances, properties and other assets that may need to be transferred or contracted into updated lease agreements.
For help with your exit strategy through business succession planning, contact our team of financial planning experts.
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