A valuable investment of your time is planning on the timing to sell up, fully or partially, retire fully or partially, instigate a management buy-out, phase out gradually or a combination of these alternatives. Involvement of family, stakeholders, business partners and your advisor is important.
A good succession plan will enable a smooth transition, minimum disruption and a fixed fee (or acceptable transitional fee) to enable you to meet future needs.Creating a succession plan that is attainable means setting a realistic timetable, measurable milestones and adhering to them.
I have helped many business owners set realistic and agreed timetables. We constantly review these with the exiting party and when circumstances change, the timetables are adjusted where required.
Documentation required to ensure a thorough & successful Succession Plan include:
a) A detailed business and organisational structure diagram
b) Details on the current owners and key management staff
c) Details on the type of exit e.g. complete removal from the business? Partial?
d) The successor details: Family, business equity partner, management team or perhaps an external arm’s length sale
e) Time frame
f) Restrictions on the succession, if any
g) Key personnel: Names, job titles, skills & possible training requirements
h) Key personnel retention plan and related effective communication strategies
i) Required training programs. In-house or external providers?
j) Attention to possible business structure changes and tax implications
k) Documenting probable registration changes for business name/s, IP, licenses, domain names, ABN, GST and group employer changes that may occur.
l) Attention in advance to lease and other finance documents
m) Attention to guarantees provided on such matters such as premises’ rent and outgoings, equipment finance, bank loans and other areas of exposure
n) Legal documents required in relation to the successions e.g. up front and on equity transfer, possible need for a buy-sell agreement and who/what entities are involved?
o) Ensuring Wills and Enduring Powers of Attorney are in place
p) Examination of insurances in place on the exiting person and key employees
Succession Timetable
Details of each phase in the planning process which may include:
a) Financial statement preparation and deadlines
b) Legal documentation timetable
c) Advising key personnel, stakeholders, financiers and family. How and when? Mentors required?
d) Insurance in place?
e) Contracts in place?
f) Advertising & marketing campaign dates if applicable
g) Training firms selected & booked
h) End date documented
Contingency Risk Table
Document areas of risk that may occur that could impact on your plans, including:
a) Loss of key personnel
b) Expected management buy-out failing
c) Sales price materially below expectations
d) Establishing a Risk Matrix along with the likelihood of each risk (Highly unlikely, likely or highly likely) and the impact on the plan (High, medium or low)
e) Examining the highly likely and high impact areas and plan the mitigation
Business Value
a) Address who determines this and when.
b) Setting a minimum price and the length of time available on the market.
Income & retirement
a) Address & document the required payments and the timetable. Terms? Security of any unpaid sale money?
b) What are cash flow expectations on exit? Fully document lifestyle needs.
Taxation
a) Examine in advance the tax implications of the planned exit.
b) Examine asset status, stamp duty implications, small business exemptions, roll-over relief to superannuation, possible tax-free termination payment, etc.