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Ownership Succession: A Crucial Planning Pillar of Succession


Ownership Succession: A Crucial Planning Pillar of Succession

By , July 26, 2021
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In today’s post, we’ll cover all aspects of Ownership Planning, a crucial pillar of successful succession planning, including;

  • What is Ownership Succession?
  • What should be included in Ownership Succession Planning?
  • What’s the process of creating an Ownership Succession Plan?
  • Why is Ownership Planning important?
  • How does Ownership Planning fit into an overall Succession Plan?
  • What are some examples of Ownership Succession?

For more information on the other foundational pillar of succession planning, Management Succession, head to our recent article Management Succession: The Forgotten Aspect of Succession Planning.

What is Ownership Succession?

Ownership Succession is about the transition of ownership of the business – equity.

Who owns the shares? Who controls the trust? The transfer of ownership is often seen as an event – and sometimes it is – a sale or listing (IPO) for example.

Often it is a more gradual transition of ownership – an Employee Share Ownership Plan being a great example of a gradual (often 5,7 or 10 year) sell-down by the founders to employee ownership.

Ownership Succession is also about transferring the value or wealth that is represented by the equity ownership in the business and so is a vital important step as the founders or owners look to exit and retire.

What should be included in Ownership Succession Planning?

In a well-designed ownership succession plan, the document should include details around;

  1. timing
  2. milestones
  3. price or value
  4. funding,
  5. and of course a plan B if some of these things go wrong or fail to materialise.

An ownership succession plan should clearly articulate the timeline and process – Is it a one-off sale event? Or is it a gradual transfer of ownership? It should clearly document the outcomes for all parties – the business, the founder/owners, and the incoming owners.

The document should be clear as to funding – what price has been agreed to acquire the equity? How much of that price is to be paid upfront and how is it to be funded? Is there any vendor finance involved? And under what terms? Is there any security available to the vendors to ensure they get paid? And what happens in case of a default?

An overall business succession plan document which should include ownership Succession and will also map out all of the business outcomes goals and milestones needed to achieve the business succession and exit planning result.

What’s the process of creating an Ownership Succession Plan?

The creation of an ownership succession plan should always start with a business valuation; not only to determine the value of the equity that is to be transferred but also to better understand the structures, risks and issues that need to be resolved leading up to and after the transfer.

Most business owners are not 100% confident or familiar with the drivers of business valuation and sometimes the number itself is quite a surprise and may lead to a rethink of the overall plan. Perhaps the business value is not enough to fund retirement and the owners need to continue on for some time.

Once the valuation is determined, a conversation with all stakeholders will be necessary ie if it’s a family business then the family needs to be involved in the conversation about selling the business assets. A discussion about the various options available to the owners should also be undertaken at this stage to agree on the best exit strategy for both the business and the owners.

The decision around exit strategy will often drive key aspects of the overall process.

For example, the steps needed to pass a business on to children is completely different to the steps required to be listed on the ASX. Ultimately the process should conclude with a business succession plan document that clearly outlines all the key aspects and that is agreed by all key stakeholders.

Why is Ownership Succession Planning important?

The academic research tells us that for the average business owner, up to 90% of their wealth is either locked up in the business & related assets (building for example) or used to secure finance for the business assets – which then means that achieving a successful succession and exit is vital to them being able to unlock that wealth and fund retirement.

Unfortunately, in Australia more than 50% of business exits are actually some kind of failure meaning the owners never get to unlock the value in the business and that the business collapses often losing money and often costing jobs of the employees who have worked in the business.

Ownership succession planning should help avoid this issue and protect the over $1.437 Trillion dollars in Australian SME’s.

How does Ownership Succession Planning fit into an overall Succession Plan?

A Business Succession Plan document should be a strategic (high-level) business plan that maps out the strategic focus for the next 5-10 years, including both Ownership and Management Succession – who will own the business and who will manage the business.

Both should be coordinated and the timing “matched” to ensure maximum chance of successful transition; meeting the outcomes of the business (as outlined in the plan), the owners and the other stakeholders  (employees, customers etc).

Managing the ownership transition is often the most difficult aspect as it involves funding the transfer of wealth and in some businesses, this can be a difficult equation to solve.


Book a free 30-minute consultation to discuss your Ownership Succession Plan

We are Australia’s leading Succession Planning experts and here to advise on your business exit strategy.

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Craig West

Craig West

Managing Director | Succession Plus

Craig West is a strategic accountant who has over 20 years’ experience advising business owners. His background as a CPA in public practice, provided invaluable experience in the key issues of concern to business owners. Following 6 years of study to gain two masters degrees, Craig focused on Capital Gains Tax (CGT) for business sales advising on strategic management of tax issues. This experience formed a very strong view that business owners (and often their advisers) were unprepared and unaware of the steps required to prepare a business for exit.

Craig now acts as a strategic mentor for mid-market business owners and has written four critically acclaimed books on employee incentives, succession planning, asset protection and exit strategies. Craig has conducted numerous seminars and keynote presentations throughout Australia & internationally, including adviser education programs for the Institute of Chartered Accountants and CPA Australia.

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