In this communication we will address the subject of SUCCESSION PLANNING, of “WHAT IS KEEPING YOU AWAKE AT NIGHT”, based on the research of B Star, a research house based in Australia.
Succession Planning was tabled as the number 2 concern. There are good reasons for this.
But first, what is succession planning?
Succession Planning is Forging the future of your business beyond the boundaries of today and this requires strategic planning and an in-depth understanding of tomorrow’s potential.
“It’s a family business, and since father passed away recently, I am concerned that my brother doesn’t want to continue in the business. We never did any succession planning, and I don’t know what we are going to do”.
Research has indicated that business owners were evenly divided between those who saw succession planning as an urgent need and those who saw it as something to be deferred.
Often business owners assume that their children, or other family members will take over the business, but have not discussed this those involved, and don’t have any idea of how it would take place.
Generally, business owners indicate that while they see succession planning as necessary, they are not comfortable with it. 90% of businesses included in the report did not have a succession plan in place. Less than 10% had a buy/sell agreement or business succession agreement in place.
Risk is one aspect often ignored by SME. Without understanding or reviewing their business’s operation, the business owner can be unaware of the risks they are running day to day. Awareness is needed before action can be taken to reduce those risks
A useful example is the key person risk, which is very common in SME’s. Approximately 30% of those surveyed believed their business could operate without them. The majority have a clear KEY PERSON RISK. But few SMEs were addressing that risk.
Approximately 30% of those researched had business and key person insurance in place to protect the business from illness or injury to owners or key staff
Approximately 50% of those researched were not willing to deal with succession- instead deferring consideration in favour of retaining control and remaining in business.
“I love what I do. I don’t want to retire. In the future, I want to still to work 2 days a week, on the tools”
“We haven’t done anything about succession. I am working on building the company so that it is sustainable for people coming up either from the family or key staff”
Less than 10% of business owners indicated that they have a reasonable understanding of succession planning.
SME’s, generally have not taken advantage of external succession options, such as insurance. Less than 1 in 3 had arrangements in place to deal with the owner’s ill health, such as key person insurance, or other insurance. Where there was a buy/sell agreement in place approximately 20% of business owners had life insurance in place to implement the agreement
STAFF AND SUCCESSION PLANNING
“I am not really interested in personal succession or estate planning. I am more interested in business succession. I don’t have a plan yet”
SME’s have small staff numbers. The impact of ineffective recruitment or the loss of a key person is much higher in an SME. As a result, staff issues are of a higher risk, particularly if not handled well. BStar’s research confirms that SME’s are doing little, or in many cases, nothing, to manage their staff or planning to reduce staff risk
Approximately 70% of SME’s were not acknowledging their risks in this key area, or taking any steps to manage them
Day to day operations remain heavily reliant on the SMEs owners, and one or two key staff. This continues unless the SME grows large enough to obtain, or afford, specialist internal or external HR resources.
So in summary
Why do I need a Succession Plan?
It begs the question, Is planning really necessary, do you need professional advice and if you have firm ideas on what you intend to do, is that not enough? Well the answer is a common sense one. If succession is really important to you, and if you do not want to leave things to chance, then planning, independent advice and early action is critical.
A steady and progressively managed transition, when started early, will provide certainty and assurance to you and to future generations in an environment of continued growth and compounded wealth
Benefits of Succession Planning
Succession is all about outcomes. It is about ensuring you achieve what you want to achieve for your business, your family, your wealth and yourself. By listing some common goals for succession you will quickly see why they should not be left to chance:
- Grow and maximise the capital value of my business
- Allow me to be actively involved in my business for as long as I want, at the level I want and as long as l can make a valuable contribution
- Build my wealth and ensure I have enough capital to do things I like and to be able to enjoy life when l begin to wind back from the business, and then finally retire
- Provide for my family and ensure my wealth is not lost by the next generation
- Receive value for my effort
- Transfer the business over to the next generation in a manner that will provide for its continuity, growing profitability and capital value