If you own your business then you already know that retiring isn't going to be as simple on your last day as handing over your security pass on the way out to your future life after work. You need a proper succession plan.
What is a succession plan?
Succession planning involves creating a legal framework where you set out the future direction of your business. For example, the succession plan might cover what would happen if you resigned, retired or died and could include:
Buying or selling a business or franchise
Buying or selling property
Dealing with shares and partnership interests
4 essential things you need to do for successful succession
1. Speak to an expert in business succession planning
Deciding what to do with your business when you retire and planning towards takes expertise. You need to consider all your options and weigh them against your retirement goals, both financial and personal. Qualified business succession specialists include lawyers, solicitors, accountants and financial advisers. Depending on your needs you may have to consult a combination of professionals. The important thing is do not skip this step.
2. Put your exit strategy in place as soon as possible
It's never too early to start business succession planning. Actually, it's recommended you have an exit strategy as part of your initial business plan. This is especially true if you want to retire early, or you want to transition out of your business long before retirement. Some succession plans can take 3-5 years to execute, and may include putting in place a new leader or business systems or even growing the business, so give yourself time.
3. Consider how you will fund the business succession
There are various ways in which you can fund the business succession plan which can include:
Self funding - where members of the business, who want to buy it, provide the funds for a purchase
By a sinking fund - where you add to the fund overtime to build up funds for future succession planning requirements
You will also need to ensure that you are covered by insurance and it's important to ensure that you have the adequate insurance cover to comply with your business plan. Remember to ask the experts for advice on how to best fund your plan.
4. Keep it in the family (or not)
According to Family Business Australia, family businesses account for around 70% of all businesses in Australia.
Their research shows that for transition:
41% intend to pass the business to family members
61% of family business owners would seriously consider selling if approached
44% of family business owners are planning to sell their business
According to Family Business Australia, succession planning for family businesses has particular issues, the top 5 being:
- Communication between family members
- Letting go of leadership/ownership control
- Providing liquidity for family owners to exit
- Securing adequate capital for growth and retirement
- Choosing a suitable ownership structure for next generation
Again the insight is to get expert help. Succession plans can involve external or internal solutions, be simple or complex and can happen quickly or over a long period. If your business is going to fund your hard earned retirement, then get the advice you need to maximise its value to you.
This information is current as at 07/12/2014.
© BT Financial Group - A Division of Westpac Banking Corporation. This document provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied up on as such. This information does not constitute financial advice. It has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness having regard to your objectives, financial situation and needs. Information in this blog that has been provided by third parties has not been independently verified and BT Financial Group is not in any way responsible for such information.