Planning ahead to exit your business should start from day one, to ensure you build a valuable and saleable asset. There are many important aspects of succession planning, so start ticking these off your list now.
Business succession planning is especially important these days. People are much more cautious with their money – prospective SME owners included – and recent ABS findings show that survival rates for new businesses are significantly lower than those that are already established.
Ideally, planning ahead to exit your business starts from day one of commencing operations and is all about building a valuable, saleable asset.
The focus is on maximising its growth potential and at the same making it as viable and saleable as possible, to ensure a simple and smooth transition for both you and the vendor.
If you haven’t already, decide now on the best organisational and development path structure for your business’s present and future, so you’re well prepared for retiring or moving on to a different venture. Arm yourself with the knowledge, skills, tools, etc, to make it as simple as possible to get the business into shape as early in its lifecycle as possible.
Successful succession takes much planning and you need to continually appraise your operations to ensure the business is attractive to today’s prospective starters, many of whom are relatively young and often vary in their approach to and perception of a practical, potential business.
Get to planning when and how you will exit the business while building its value consistently over time, ensuring you’ve done everything to make the exit as simple as you can for all parties.
Succession planning involves many different things, depending on the type of business and who works within it. Ask yourself how you’re doing in areas such as those below:
- Business plan – are you contributing ongoing commitment to fine-tuning and clarifying the entire business process? Are you involving all staff in this? How are you going with applying the appropriate key performance indicators?;
- Paperwork and business processes – is the paperwork up to date and well organised? Is your accounting system like a well-oiled machine that can be easily run by a new operator? Are books and financial records self-explanatory? Are all business processes well thought out, professionally planned, well documented, constantly evaluated, etc?
- Branding – is it promoted via your name, rather than the business name? Therefore, what will people see when they think of the business? Creating a strong profile via a personal name is a great strategy for building a business but not so ideal for maximising its sale value sale. Reliance on one or only a portion of the business’s employees for the majority of the results can be a downfall when attempting to sell up.
- Reputation – how would people describe your business to others? How would they describe their experience with it? How active is the business within the local community? What are customer service levels like? It takes a long time to build a solid, positive reputation and only a short time to destroy it. The way people perceive a business will obviously have a material impact on its sale process.
- Location – consider the importance of the business location to business success ie. will it hold you back from selling at the price you’re looking for whenever that may be? Think traffic flow, lease agreements, equipment and other contracts, etc.
- Employee relations – are agreements, confidentiality, policies, etc all up to date and satisfactory to employees? Do they comply with all appropriate regulations?
- Preparing a successor for the business – have you? Beyond selection, you’ll also need to get going with training (and/or re-training), knowledge transfer, support structures and more. If family members are involved, the preparation may also include discussions with family and explanations to others who thought they would be the ‘chosen one’ and may perceive there to be favouritism at play within the decision making process.
- Employee ability to adapt to change – are all employees aware of the succession plans and their place within it? How do you as owner make them feel – are they are taking the ride alongside you, and believe change will be to their benefit also? Are they rewarded or recognised for buying into and committing to the business direction?
- OH&S history – what ‘best practice’ policies do you have around occupational injuries and illness to make the business as safe and health issue free as possible? Problems in the past can affect the business’s reputation and therefore the price a buyer will pay.
- Corporate social responsibility – is your business a responsible, thoughtful community member? Think carbon footprint, energy efficiency, paper consumption, recycling, etc. Acting in a socially or environmentally conscious way is becoming more of an issue for many people, not just environmentalists, so it will most likely affect the business’s value.
Business performance will of course be a key factor in a potential buyer choosing one business over another but the above listed factors and others need to be in a good state.
The future is always uncertain, but you can do your darnedest to maximise your business’s sale value by applying regular focus to your succession plan and sharing it with your operational stakeholders – from staff to family and beyond where relevant.
