Future proof your business with a succession plan

Business owners are some of Australia’s hardest working people.  From managing customers, invoicing and payroll to marketing and recruitment, there never seems to be enough hours in the day to get things done.    

It's no surprise many business owners will struggle to put succession planning on their agenda.  Yet, succession planning might be one of the most important plans a small business will make. 

What is a succession plan and why do I need one?

A succession plan is the plan business owners use to pass on their leadership with minimal or no interruption. 

It’s a strategy that helps companies to be sure they have the right skills and talent in the business when an owner decides to step away or retire. 

Importantly, it also gives the next person in charge a financial and operational plan to run and grow the business. 

There are many reasons to consider a succession plan including retirement, to manage unforeseen issues such as an accident or illness, or simply, because it’s time to stop running the business.

“Creating a succession plan is about managing business change in the best way,” said Bendigo Bank’s Business Banker, Tavis Baker.

“There are many different ways for businesses to approach succession planning, but what’s most important is that it’s a smooth transition for the business owner and the successors, and a seamless experience for customers.”

“Succession plans aren’t only for large organisations. Having a thorough succession plan means you can move away from your business with ease and support the next leaders to run a profitable company in the short and long term.”

What to consider when creating your succession plan

The Federal Government has a succession plan template to help you write your plan.

Here are some things to consider when planning for a successful succession;

The right person to run the business

A successor might be a family member or an employee who has the right attributes to take over your business or who could do so with the right training. You may also identify more than one person.

Consider their technical expertise and industry knowledge, business management skills, how they lead people, and importantly, their values and their alignment to your company’s values.

“The right mix will be different for every business, but a succession plan should consider the best and right person for the job,” Mr Baker said.

“Communication is key. Talk to them as early as possible to understand their future ambitions. This is especially important if the potential successor is a family member.  In this case, consider also talking to other family members to manage unforeseen expectations.”

Consider all financial matters

This might include asset and company value, sale price and tax implications. Having a close relationship with a trusted and knowledgeable Business Banker will help you to work through your financial position.  You might also consider seeking accounting, financial planning and legal advice at the early stages of writing the plan.

“The details may change over time, but it’s good to establish a starting point for future reference, and work with experienced people who you trust,” he said. 

Review it regularly

Review your succession plan every six to 12 months and make any necessary changes.

“This will mean successors who have entered the business with the right knowledge and attributes are identified, as well as those successors who are no longer interested,” he said. 

“In the case of changing market conditions and business demands, your financial position might impact your transition timeline, and this would need to be factored into your plan.”

Start planning today

Most business owners consider their succession plan when they’re ready to leave their business, but it’s best to start sooner rather than later.

Putting your plan in motion may take time to ensure the transition is smooth, sometimes two or three years depending on the business. It could also take some time to identify a suitable successor or attract a buyer. 

“There might also be instances where something unexpected happens like sudden illness or an accident which forces you to put a plan in place sooner than anticipated, so it’s best to create it now,” he said.

“Whether you find someone to take over your business, you sell it or simply end it, working out what happens next to your business will be filled with many emotions, so give yourself the time to plan for a successful succession.”

For one commercial builder in Regional Victoria, starting the process of succession planning as early as possible made for a smooth transition.

The process started with early talks with an employee, who had the right skills mix but was required to upskill before becoming a director. 

The company brought Bendigo Bank’s Business Banking team on board at the beginning of the process. The team assisted the company to understand all financial aspects of the succession planning process for a successful transition.  The transition from the one director, who was retiring, to the new director took more than 18 months to complete.

Having open conversations as early as possible was key to this success.

Your Business Matters. Make an enquiry today!