One of the most important issues that needs to be considered in succession planning is where is the business going? Every business needs growth and where the business is going to go in the next phase of its development is very important. Questions to consider include what type of succession planning are you contemplating? Are you looking to only change the management and the current owners will continue to own the business and will continue to serve on the board of directors setting policy etc., or is it a complete sale of the business so that there’ll be a management and shareholder/owner change that is going to occur.
There needs to be at least 2 years of planning on the business issues relative to succession planning.
What is a realistic sales price? Could the sale price be improved by the implementation of more detailed systems manuals, accurate customer lists, improved staff training, better appreciation of the market opportunities. If you did these things then you would probably improve the price earnings multiplier that is used in the valuation of your business, because the purchaser would pay you a premium for having implemented a wide range of systems which contribute to the business’ success.
If you are contemplating retirement over the next few years, then you can significantly improve the prospects of achieving a sale at a price that you would be happy with, by understanding the growth prospects in your business and preparing a strategy as to how the growth will be achieved.
Many small business operators leave a lot of money on the table in their succession exit because the process has been rushed or they have given insufficient time to the important planning issues that are involved in planning an orderly succession.
Article by Christie Lewis
Christie is Practice Manager at Alan Lewis Accountants . Besides accounting, her passion is for all things small business (and blogging, of course). You can contact Christie directly at christie@lewistaxation.com.au.
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