Planning for a Business Succession

Succession planning

It takes a lifetime to build a successful business but failure to have a good succession plan might be the main reason for business failure. Recent studies show that in Australia, less than 30 percent of businesses have a good succession plan. However not all succession plans are successfully executed. This in turn affects the control, management and ownership of the new business. Here are some key things to look at in business succession like business valuation, succession procedure, how new owners can successfully run the new business and how to successfully run the new entity.

Effect of business succession in Australian economy

Private and family businesses are the most affected ones when it comes to succession. Most of these businesses do not have well-documented takeover plans and do not see themselves as ready for takeover. This makes it difficult for the new owners to successfully run the business. If the matter is not resolved on time, it can eventually lead to business failure. Poor succession strategies in Australian economy have led to low price-earnings ratio and relatively lower sales compared to the predecessors who have run the business. Major reasons why businesses fail to undertake succession planning include bias against planning, reluctance to let the business go, fear of the future and poor execution of the succession plan.

Need for business valuation

Knowing the true value of the business is key to any owner prior to business succession. A proper business valuation should be done with the help of an expert and avoid just making inferential valuation. Prior valuation of the business will help in determining any gaps or opportunities that the business has, finding the saleable value of the business, utilizing the value of the business, facilitating transition, easy calculation of compensations and share plans and avoiding any transfer of taxes.

Business succession procedure

Proper succession procedure helps in avoiding problems which may arise from the transfer of ownership. This procedure starts with the owners or shareholders of the business stating objectives and goals in relation to the succession. Business valuation should then be done to identify if the business is in a position to meet the set objectives. The entrepreneurs or owners of the business need to determine an efficient way to transfer any kind of taxes. The next challenging step is to select the right successor and finally deciding which share of profits to share from its proceeds.

New business succession

Adequate preparation need to be done when it comes to replacement of the CEO and transfer of employees. Engaging advisors and experts will help oversee the whole process smoothly from the old organization to a new entity. The owners need to identify the right kind of people to fill the different roles. The staff should be evaluated against their talents and abilities to potentially fit and perform the new roles. Finally the employees need to be placed in respect to their experience, talent and ability to help the new business attain its objectives and core values.

It is not a must for the founder of the business to die or become incapable to run the business in order to start thinking of business succession. Planning for succession will help oversee the life of the business no matter if entails completely selling the business, or replacing the owners or founders of the business.