Succession Planning on the Backburner

Without a strategic succession plan, the value in your business may well retire when you do.

03 September 2018

Despite all the research available it is still quite obvious that business owners in Australia are leaving succession planning on the backburner.

Recent surveys show that only a small percentage of business owners surveyed had a fully documented succession plan in place.

The net value of any business is, in many cases, our second greatest asset after the family home and in lots of cases a more valuable asset than even the family home, but interestingly business owners don’t seem able to pay the time, effort and attention required to devise a satisfactory succession or exit plan.

As an interesting contrast, professional investors in the small business market (venture capital firms and private equity funds) will never go into an investment in a small business without having a detailed exit strategy documented and designed and often with a fall back or worst-case scenario exit strategy also included in the plan.

In other words, the professionals always have an exit in mind before they enter, but small business owners very rarely do! A sharp contrast between professional and “amateur” small to medium business owners or investors.

Demographic data from the New South Wales Department of Planning indicates that between 2006 and 2036 the number of people in NSW aged 65 and over will increase by 111% and will represent, at that point, 21.5% of the population.

The ageing population was the result of the baby boomers (born between 1946 and 1965) shifting into the older age groups, combined with falling mortality rates, the department said.

Many of these baby boomers are in businesses and many are expected to retire in the short-term future. in fact, the average age of a family business owner currently sits between 56 and 58 years old, depending on which survey data you review.

Succession Planning - Beginning with the End in Mind

Given all the above information, it seems overwhelmingly clear succession planning should be a major priority for any business owner and particularly those approaching retirement. However, this is not the case as the statistics also show a very small percentage of business owners have actually addressed this issue. The question we ask is WHY?

It is not overly expensive by comparison to the value of the asset, there is of course time and effort involved, however the return on that time and effort can be considerable and in case studies of businesses we have worked with, we have been able to demonstrate substantial improvement in value as a result of detailed succession planning attention.

Business owners are typically focused on the day-to-day issues of running their business and this often prevents them from looking at strategic long-term planning- the very thing which could actually release them from the trap of having to be involved in the day to day running of the business.

Succession planning is simply about taking a considered and strategic approach to your business exit strategy at the right time, in a similar way to the professional investors.