Succession Planning
The Ticking Time-bomb That Destroys Businesses: Delaying Succession Planning
This article covers:
- Explore the hidden benefits that go beyond financial considerations when implementing a succession plan for your business.
- Delve into the mindset barriers preventing many business owners from securing their legacy and financial future.
- Gain insights into a proven 21-step exit process offered by Succession Plus, providing a glimpse into comprehensive planning for a seamless transition.
The most recent Voice of Australia Business Survey shows only 19% of Australian SMEs have a detailed and documented succession or retirement plan. That’s fewer than 1-in-5. With a large cohort of businesses owned by Baby Boomers (born 1946-1964) who are reaching the traditional retirement age, many are at risk of financial insecurity during their retirement years.
“Many high-income boomers … reject the traditional notion and see ‘retirement’ as a change of career, one in which they work fewer hours, shift down a gear and enjoy the flexibility to pursue their hobbies and leisure interests,” according to The Australia Institute’s paper, Rich Boomer, Poor Boomer.
They go on to say, “Many believe they will not be able to enjoy a traditional retirement because they will need to continue to work up to and beyond the retirement age for financial reasons.”
Even if the thought of ‘retirement’ fills you with dread, a succession plan is essential because life is unpredictable. Most owners think their business exit is a few years off, but a surprise health diagnosis, accident, loss of a preferred successor, relationship breakdown or massive market shift (like emerging AI technology) could all change that situation instantly.
Seriously consider, if you were forced to ‘up stumps’ tomorrow for any reason, would the outcome be economically ruinous or empowering?
To succeed means you must begin to plan as soon as possible, with the end in mind.
Challenge what an exit plan means to you
Succession planning contributes to the long-term sustainability of a business. Too many owners believe that making and executing a plan is something for the future, but the positive impacts are far more immediate, making businesses more resilient.
For a start, a business succession plan and continuity measures provide a sense of security for your staff, helping fill in the long-term vision for those you employ.
Another way to think about your role as an owner is this:
“If you can’t design systems to make your responsibilities absolutely redundant, you’ve built a career trap, not a business.”
In the absence of a succession plan, you’ll instead be creating a fair amount of anxiety-inducing uncertainty about your own future. After all, the majority of most business owners’ assets are often non-liquid, tied up in the business and real estate. Considering the superannuation guarantee arrived when Baby Boomers were 30-45 years old, many owners will not have enough to fund their lifestyle into old age.
This is the time to dedicate your energy to what truly matters.
Getting a succession plan in place is perhaps one of the most meaningful things you can do for yourself and those you care about.
What are the causes of poor succession planning?
It’s difficult to pinpoint exactly what’s stopping the other 81% of Australian business owners from taking steps to safeguard their legacy and financial future. But, from over two decades of experience helping business owners with exit planning, we’ve found five prevailing beliefs preventing owners from taking charge of their future.
- I’ve thought about it and have a plan in my head. (Overconfidence)
- That’s a huge task, something to start when I’m ready to retire. (Procrastination)
- I’m too busy just trying to stay afloat to worry about exit planning. (Short-term Focus)
- I’m not confident if it’s best to sell, liquidate, or pass it to a successor. (Indecision)
- My business is my purpose; I don’t want to think about leaving. (Fear)
These are all a path to a dark place. So if one or more of the above resonated with you as a reason you’ve delayed creating your succession plan, it’s time to meet this responsibility head-on, immediately, as a way to level up your business, get back more time for the things that matter and fund future success.
Planning your business exit with a Succession Plus Partner is a proven way to holistically overcome many of your biggest business challenges, as we’ll explain below.
1: “I have a succession plan in my head”
That’s a great start, but it won’t help your team plan for the realities of your departure. To realise that goal of sale, succession or an ESOP for your staff, we need to set the details on paper, look at legal and tax compliance and ensure you’re going to maximise the value at exit.
Succession Plus has a detailed 21-step exit process that covers financial and non-financial areas of the business, as well as how to manage your financial windfall (such as minimising CGT).
We guarantee that, even in a 30-minute free consultation, we can identify elements of your succession plan that haven’t been considered.
2: “Succession planning is too big a project right now”
Yes, it’s far too big to ignore or take on all at once. Creating a succession strategy may appear to be a monumental undertaking if you’re unclear on all the small steps needed to get it right. But the closer you are to a business exit, the fewer options will be available to you, including making improvements that would boost your final sale value.
Our succession planning process is executed in small weekly steps, allowing you to focus on growing and enhancing your business’s value, simultaneously improving day-to-day operations. Think of it as a meaningful way to better develop your business while alleviating personal stress.
Mentoring senior management to prepare your successors increases the likelihood of a smooth transition and, in turn, can positively impact a company’s market position and attractiveness to potential buyers or investors.
After all, you didn’t build your business in a day or even a year, right? Incremental steps have made it what it is today.
Having a codified succession plan, with small tasks to undertake each week, will make the process much more manageable, create more space in your life, and become exhilarating as you power through them.
3: “I’m too busy; exit planning is low-priority”
The daily challenges and opportunities of running a business often demand our immediate attention, meaning many business owners leave their succession planning on the back burner. However, succession plans are essential to business continuity.
We’ve seen first-hand the stress and chaos caused by putting off this essential process: endangering the fate of the company, losing key employees, forfeiting a comfortable retirement and damaging the overall business legacy.
“A succession plan is a critical part of your business plan. Just about every action taken to become exit-ready will also improve your business.”
When employees see that leadership is actively planning for the organisation’s future, it fosters confidence and engagement. Visibility of ‘what will happen’ will help employees feel more secure in their roles and, especially in the case of an ESOP or ESS, motivated to contribute to the company’s long-term success.
Imagine working for a company where the founder openly discusses and plans for the eventual transition of leadership. This transparency reduces uncertainty and encourages employees to stay committed to the company, knowing that their contributions are valued.
4: “I don’t know where to start with exit planning”
Your answer: Right here with a 30-minute free consultation to help you understand each option’s pros and cons based on your industry, business model and life situation.
We can help you plan to mitigate unforeseen events that can disrupt even the most stable companies. Waiting until the moment you need a succession plan leaves your business and those who rely on it incredibly vulnerable. A guided succession plan will include contingency strategies to address potential risks.
For instance, a software company faces a sudden health crisis involving its CEO. The company has a detailed contingency plan in place thanks to early succession planning. A capable interim CEO steps in, ensuring that business operations will continue smoothly while the CEO recovers.
5: “I don’t even want to think about my succession plans”
It’s time for a reality check. There is no question about whether you will leave your business. What’s important to know now, and in concrete detail, is when, how, and whether it will be on your own terms.
“As much as you might love running your business, you must have an end goal in the plan. At the very least, an exit strategy keeps you from turning your business into a glorified job – working from home, but with longer hours.” ― Kevin J. Donaldson
Framing an exit plan as your “next venture” can be helpful for some. Rather than a ‘resignation’ this is your most important fight yet — because the future of your business, your family’s well-being, and your retirement income are at stake. Without a plan, everything will become wholly uncertain, potentially jeopardising everything you’ve worked so hard to create.
Succession planning is also respectful to the people who’ve put in the blood, sweat and tears so far.
Early succession planning gives you the greatest chance at preserving your business legacy. The company you’ve built is more than just a balance sheet; it results from your hard work, dedication, and vision. Without a well-thought-out succession and exit plan, your legacy may be at risk.
A succession plan helps transition management into leadership
Your first thought may be to offer the business for sale on the open market. That can work in the hands of a well-connected business broker. But finding the right buyer can also take years — when one could be in the office down the hall.
Succession plans aren’t just about finding a replacement; it’s about identifying and developing future leaders that suit business operations. By starting early, you have the time to see potential internal candidates, assess your team’s strengths and weaknesses, provide training and mentorship, and ensure a seamless transition when the time comes.
Consider the case of a manufacturing company. The founder, recognising the importance and benefits of succession planning, identifies a promising operations manager and invests in their leadership development. Over time, the operations manager becomes well-equipped to take over, ensuring a smooth transition and the business’s continued success.
Succession plans are a crucial aspect of any business that involves identifying and developing new leaders with institutional knowledge who can take over key roles when the current leaders retire, resign or pass away. While many businesses have some form of succession planning for management roles, the same cannot be said for ownership succession.
Avoiding the pitfalls of ownership succession
Ownership succession is often ignored and delayed because it is much harder to identify, train and prepare someone for the responsibilities of ownership.
Finding the right internal candidates with the skills, experience, and character to lead the business in the future and negotiating the transition of ownership can be a complex and time-consuming process that requires careful planning and execution.
Moreover, ownership succession is often more emotionally charged than management plans, as it involves transferring not just control of the business but also its wealth and continuing the legacy. This can create tension and conflict within families or among business partners, making it even more challenging to plan for ownership succession.
Despite these challenges, it is essential for businesses to plan for ownership succession to ensure the long-term viability and sustainability of the enterprise. By identifying and developing new leaders who can take over ownership of the business, businesses can ensure that they continue to thrive and grow even after the current owners have retired or moved on.
“I started my exit plan too early,” said no one, ever
Procrastination is costly, especially when it comes to succession planning. Leaving it to the last minute risks your business legacy, your employees’ well-being, and your company’s value. Early planning mitigates these risks and sets the stage for a seamless transition, allowing your business to thrive long after you’ve stepped away.
So, if you haven’t already, start the conversation about the benefits of succession planning within your organisation today. Whether you’re a family business owner, a corporate executive, or an entrepreneur, the time to act is now. Doing so ensures that your business legacy endures, your team thrives, and your company’s future remains secure.
Succession Plus is one of Australia’s oldest and most trusted succession planning companies. If you need guidance to align your goals and the plan to achieve them, reach out for a free 30-minute consultation with a Succession Plus Partner.
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