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Business Succession and Exit Planning: 21 steps [condensed]

Succession Planning

Business Succession and Exit Planning: 21 steps [condensed]

By , May 18, 2020
Craig west discussion

This article has been developed from a transcript of a 21 Steps to Business Succession and Exit Planning presentation delivered by Craig West. Craig goes through the process of business succession and exit planning and how it may look if you came on board as a client.


Succession and exit planning is a growing area of business. It’s our company’s bread and butter, with 26 advisers across Australia. We’re seeing a massive increase in enquiry predominately from baby boomer business owners who are looking towards retirement and seeking help to navigate this stage. It’s important to understand that it’s a very cooperative advice piece. It’s not a piece that accountants, financial planners, banks or business coaches can do on their own, it’s quite collaborative.

To clarify what business succession and exit planning means, it’s about getting three things right at the same time. The first one is the business. The business needs to be ready for a sale, a transition to family members, an Employee Share Ownership Plan (ESOP), a listing or whatever the exit strategy might be.

This isn’t just about the business though, both the business and the owner need to be financially prepared at the same time. So there needs to be certain aspects considered. We see lots of business owners that may own the building they operate from. Do they want to sell the business but keep the building? If they do, who owns the building? Should that be in self-managed super? How’s it protected? Is there a lease? Lastly, the personal component. The personal goals of the business owner are really important.

The average life expectancy for Australian males that are retiring now is 82. This means people are expecting to live for 10, 15 even 20 years after retirement, which is not uncommon. This presents two problems, and one is simply boredom. There other is that people don’t know what they’re going to do in retirement. Most business owners work consistently hard in the business all day, every day. But once they are retired, what are they going to do for the next 15 years? We believe it’s important to get people thinking about what they want to do after business.

Referencing a quote by Steve Covey, “Begin with the end in mind.” This is an important conversation starter with clients to sit down and discuss where they want to end up.

Questions need to be asked, such as:

  • Why are you in business?
  • What are you looking to achieve with the business?
  • What does the business look like in 2030?
  • In 10 years from now, are you still there?
    • Do you still own it?
    • Do you still work in it?
    • Is it run by your family?
    • Have you put an Employee Share Plan in place to lock in your key managers? Or, have you sold it, retired and gone fishing?

All answers are valid. It’s not about which answer is the right answer. It’s about making sure they have clarity in the answer. Clarity then gives the client some defined actions and options to consider as they head towards retirement.

The earlier we get in front of them, the earlier we can add value and help them. How do we go about succession planning? It’s a 21-step process that Succession Plus uses with all clients and it refers to value, comprising five stages.

  1. Identify value – determining the starting point, including business valuation;
  2. Protect value – making sure we have proper risk management and asset protection in place;
  3. Maximise value – working to make sure business value is maximised and the business is ready for a business succession plan;
  4. Extract value – the liquidity event or transaction; and
  5. Manage value – post-sale or exit ensuring assets are protected and value is invested to fund retirement

These steps and what work we do during each will be covered. So step four and five, for example, are all financial planning. We work very closely with financial planning wealth advisers to get those things right.


1. Identify Value

The first stage is about identifying value.

The way that we do that is to start with some goals and outcomes. These are often identified by asking questions such as:

  • What is it you’re looking to achieve with your business?
  • What does the timing look like?
  • How prepared are you financially?
  • Is there a funding gap?
  • Are you going to be able to fund retirement for the next 15 or 20 years or do you need to sell your business for $3 million to allow you to do that? If you do, is the business worth $3 million or have we got a gap?

So why do we do that? It’s some pretty detailed financial analysis. We use a financial scorecard to point out to clients how their business is performing, where they’re over or under performing in terms of industry averages and benchmarks.

The non-financial aspects of businesses, however, are often not so good. Typically small to medium businesses are very owner dependent, which can be described as a key man dependent or a key person dependent. The management team couldn’t run the business without them, there’s no incentive for those staff. Sometimes there’s no job description, KPIs, performance management system or incentive planning around those KPIs. There’s often accounting or tax issues down the bottom, not about the financials but the methodology. We ask clients, how often do you sit down with your accountant and score them. For most clients that are a part of larger businesses, we suggest having them meet with their accountant at least once a month, asking questions such as: have they got a board or corporate governance structure in place?

Next, there’s sale or exit readiness. How well prepared are they for an exit event? Is the business attractive to buyers? Have they got all their documents in order and often we see clients that just aren’t prepared. There are a lot of unsolicited offers in the market at the moment, and of course, if they’re not prepared, they haven’t got the documents, they can’t find the lease or they haven’t signed clients up. It’s about getting those things together.

Now all of that comes together in what’s called a Business Insights Report. This is a detailed look at the business for two reasons.

  1. We want to find out where the business is at today and we’re looking at it through a buyer’s lens. What could go wrong? If I’m a buyer for this business, what’s going to go wrong? What’s going to cause me concern? What’s going to lower the price? Or sometimes what’s going to make me walk away?
  2. We also look at it for value growth. How do we grow the value of this business?

For example, we value a business today at $5.25 million and we’ve outlined a lot of changes that could be made to that business over a 12 to 18-month period that would increase the value up to $9 or $10 million. Now, business owners generally don’t focus on this. They’re too focused on the short-term management issues: I’ve got to do that, I’ve got to do this, I’ve got to make sure that employee gets replaced. It’s just too centred around the day to day. This is a strategic look at the business and what’s driving value. We’ve got to identify what are the key value drivers and then we come up with a pretty simple plan that’s month by month.

Every single one of those 21 steps is broken down into red, orange and green traffic lights.

  • Red is urgent and important because it’s going to hurt you if something goes wrong right now.
  • Orange is you should do it and it’s going to add value.
  • Green is a nice to have.

You would do all of those things in a plan to make sure you’re maximising value and you’re ready to exit, that’s the key outcome.

If you go through that plan or that implementation model, you will end up being at maximum value and ready to exit. An exit could be a sale, it could be passing along to your kids or it could be an employee share train or a management buyout.


2. Protect Value

Then we’ve got to press the pause button for a while and talk about asset protection and protecting the value we’ve already got.

Most business owners as they grow, skip this. This is hard work that costs money and sometimes they skip over it until there’s a problem and then they wish they’d done it a long time ago.

So firstly the financial planning conversation, covering questions such as:

  • What does the funding gap look like?
  • Have you got enough money to retire?
  • What about tax?
  • Have you got the assets that you want to keep in a self-managed super fund or other structure depending on your situation?
  • Have you got your estate planning handled?

Many businesses that I’ve asked about wills and estate planning say “yes, I’ve got a will” and then you get a copy of it and it’s dated 25 years ago before they were married, let alone before they started the business. They’ve now got three factories and 30 employees and the wills give everything to their spouse. Fantastic. But it’s not going to do a great job in the current environment. So you have to get that sorted.

Then we have to think about the inevitable. What happens if we get hit by a bus? Unfortunately, most business owners don’t want to talk about this. Let’s be real, it’s not exactly a dinner conversation, but this needs to be covered.

  • Are there documents in place that govern the outcome that give us certainty around what’s going to happen? Shareholders agreements, buy and sell agreements, for instance.
  • Do we need insurance in place? Often this is one that business owners ignore as the value of the business grows. They don’t spend enough time managing this and therefore they’re vulnerable to a serious illness or an accident.

The higher the asset risk, the lower the valuation. This is universally true, especially when it involves privately held, family-owned or mid-sized businesses. There’s not enough time spent on risk management. Growth is important, but you can’t grow and ignore risk because you’re going to end up in a lot of trouble at some point.


3. Maximise Value

Now comes the interesting and exciting stuff: how do we maximise the value of the business?

The place to start with that is around the exit options. This is a really interesting conversation with clients because they’ve generally never thought about it. Lots of family businesses get handed onto the next generation and no one gets paid so it doesn’t create a lot of value and it creates a lot of risks for the next generation because they’re not well prepared either. If you look at an Employee Share Plan, management buy out, then we get up to the more valuable things around private equity and strategic sales. This is where we can maximise value, but they take time and effort to get to that point. It’s all around building equity.

It’s all about understanding how you build equity in a privately held business. Many client’s main focus or number one question is how do I minimise my tax? It’s very common and yet they can make much more money and eliminate the worry surrounding tax amounts if you get this right you’ve got plenty of money to pay the tax down the track.

Then we have to think about the actual business model. We have to think about how the business makes money, how it operates and how well known is that operating method and model throughout the business.

  • Do all the employees understand what we need to do to make money and how does that match with a financial model?
  • Have we then got a financial model that measures and tracks our financial performance against our strategic goal?

So if a business owner tells me that they want to sell their business in five years because they’re going to turn 65 and want to get $3 million for it, I can work out pretty quickly what that business needs to look like: turn over, number of staff, margins, profits. A method to get to that point. It’s about strategic planning, not just letting it happen and hope the business owner ends up at $3 million in five years.

Other things to consider when trying to maximise business value:

  • Ownership Mindset:

Ownership Mindset is a step where employees are encouraged to think and act like business owners. There’s a whole education process and workshop that runs through getting employees to think and act like a business owner. Imagine if you’ve got employees in your business that thought about it and looked after it the same way that you do as an owner, you’ll get a different outcome. There’s a lot of academic research around how that works.

  • A Peak Performance Trust:

A Peak Performance Trust is an Employee Share Plan. This is hugely popular in nearly all the states in the US. Nearly a third of all business styles in the United States go through an Employee Share Plan, here in Australia it’s less than 3%. Now it’s not right for every business, and not the answer to everything, but there is a valuable solution here for professional service firms in particular. Especially where you’ve got key staff that you want to lock in and most professional service firms have.

  • Management Succession:

This is about who’s going to run the business when you don’t or when the owner doesn’t. If the owner wants to retire and exit the business, there has to be a successor. This needs to be either an external buyer or if it’s internal, somebody internal has to be able to run that business, usually this hasn’t been put in place. They haven’t identified that person, they haven’t identified the gaps and they certainly haven’t entered into a program to fill those gaps and make sure the person is capable of taking over from them.


4. Extract Value

Now, the extraction piece. Sounds like we’re going mining but in this case, we are harvesting the value of the business.

We need to work out what is needed to achieve that. One thing to be considered early on, as it takes time to get right, is small business CGT concessions and whether the business qualifies. There are a lot of conditions and so the earlier we can talk to the business owner about that and work with them on that the better chance you have to take advantage of them. They’re in place for a purpose but lots of clients for one reason or another haven’t got the structure right, haven’t got some documentation in place and therefore they don’t qualify. Missing out on quite a generous tax concession.

Documentation is also important and so you need to start to get together, not just an Information Memorandum document around how you sell a business, but all of the due diligence material. Typically when we send this out, when we’re acting on the buy-side for buyers, we would send out 12 to 14 pages of questions and it’s just a list of all the information we need and it’s detailed and interestingly most of the businesses struggled to get that back to us.

Then the Liquidity Event itself and there’s one thing I want to say about this. Most business owners and most business brokers will tell you to focus on growing the profit and I’m not saying don’t do that, profit is very important, but by far the best way to get more money for your business is to work out who to sell to and how to sell it. It’s not about maximising profit. You have to have a profit, don’t get me wrong, you need it there, it’s important. But if you can find a strategic buyer or listed company, they will always pay more for your business. There’s never any doubt about that. But you have to find the right one and you have to be ready and well-prepared because they are professional buyers. They know what they’re doing. It’s not a mum and dad buying your business. It’s a listed company. They will have a process and documents and you need to be well prepared to do that.

And then lastly, once we have finished the transaction, we’re now retired. Firstly, we’re never going to earn any money out of our business again. That all stops the day the business changes hands. So now it’s about investment earning, so you need good financial strategic advice to make that happen.


5. Manage Value

The last stage is around Estate Planning. How do we manage for future generations?

Enduring power of attorney is important during this stage. If this documentation is not in place, you will have issues accessing the money. For instance, a client in Adelaide had problems getting access to the company bank account as the sole director (and his father) was diagnosed with early-onset Alzheimer’s and was no longer legally able to sign any documents. With no power of attorney for the son, no one could access the company bank account. The court order and legal expenses that ensued could have been avoided by talking to a lawyer and getting an enduring power of attorney and getting all of your estate planning in place.


With expert business advisers across Australia, we are well-positioned to help any SME business owner through their succession and exit planning. If you’d like to discuss getting the process started for your business, please get in touch.




Craig West

Craig West

Executive Chairman | Succession Plus

Craig West is a strategic accountant with over 20 years of experience advising business owners. His background as a CPA in public practice has provided invaluable experience in the key issues of concern to business owners.

In March 2014, Craig was appointed Executive Chairman of the SME Association of Australia, Australia’s largest small business organisation representing over 300,000 business owners.

In October 2014, he was awarded the Exit Planner of the Year at the Exit Planning Institute Annual Conference in Texas, USA, due to his innovative development of an exit planning process to help business owners maximise business value and achieve a successful exit.

Craig’s proprietary structure - a Peak Performance Trust - has won the Australia-wide award for the Employee Share Ownership Plan of the year twice in four years.

In November 2018, Craig launched SME Experts in partnership with Mark Bouris’ Mentored on Podcast One and quickly grew the monthly podcast audience to over 26,500 downloads; in October 2019, he released a new podcast focused on medium-sized businesses - Mid-Market Matters.

In July 2021, Craig joined the NSW Committee for STEP (Society of Trust & Estate Practitioners) – focusing on advising families across generations.

Craig has also launched a SaaS platform, Capitaliz (which captures the 21-step process), to assist other advisers internationally deliver advisory services at scale.

In November 2021, Craig was appointed Executive Chairman of NSW Leaders, a business mentoring group for leading NSW businesses.

In July 2022, Craig West received the award of Doctor of Business Administration for his research thesis titled “Examination of the key factors driving business exit options in Australian Small and Medium Enterprises.”

Craig is passionate about encouraging business owners to think strategically, maximise the value of their business and achieve a successful exit.

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