If in recent times you’ve thought about adjusting your business plans, you wouldn’t be the only one. Many business owners are giving thought to scaling back their involvement in day-to-day operations and what their role in the business will be in the long term. Matters that have long awaited attention have recently enjoyed a new level of priority, and among them is succession planning.
If there is any suggestion of a ‘silver lining’ within the recent chaos, it has been the opportunity for many business owners to pause and contemplate what really matters. It has also reinvigorated innovation and a desire to do things better, faster and more efficiently.
We are finding that many business owners are being drawn to the notion of starting the process of making their businesses ‘sale ready’. In my experience, most business owners will want to sell, transition or otherwise voluntarily exit their business at some stage. There can be significant roadblocks which may prevent a successful exit, especially if the business is under-prepared or being sold for the wrong reasons.
Review your succession plan
When you hear the words ‘succession plan’, you probably think of scenarios that include passing the business on to the next generation, preparing to sell or perhaps even getting it ready to list on the stock exchange.
In my experience working with clients, there are four crucial elements to every succession plan:
• Structuring for succession – ensuring your business structure is both ‘fit for purpose’ and succession ready.
• Maximising value – improving your financial statements and being able to demonstrate that the underlying business is strong and stable.
• Preparing for the future – applying strategic planning to the family setting and having those all-important conversations about the future with those you love.
• Professional advice – understanding that you will need advice especially in regard to tax, legal and personal financial planning considerations.
Succession should be considered a journey, not an event. It begins long before you are ready to hand over the reins to a successor, and it doesn’t end on the day you do.
It continues beyond hand over to include tax effective management of the sale proceeds, personal wealth management and estate planning that considers your future legacy.
In the meantime, while you remain at the helm of your business, considering and implementing processes that can alleviate time pressure and personal stress can enable you to be absent from the business. This creates a dual benefit of being ‘present’ with family and friends when you need to be, while proving your business can successfully operate without you.
Purchasers will relish evidence that your business is not reliant on one key staff member.
Equally, purchasers are likely to look favourably on your business where it can be exhibited that it is not reliant on a few key customers or suppliers, and that you have strong internal processes in relation to finance, HR and corporate governance.
We recommend that you take some time attending to each of the four crucial succession elements which might include the following initial suggestions:
Structuring for succession:
Take time to review your business structure to ensure it is fit for purpose and succession-ready. It is very likely that the structure used to commence your business all those years ago, no longer offers the benefits and features necessary for the mature business you own today.
Through this process, identify hurdles that need to be overcome, such as the costs of a potential sale transaction, which might include CGT and, for Queensland businesses, transfer duty.
Undertake an internal review of your business, including its systems and drivers, to confirm that the underlying value is strong and stable.
Speak to your accountant about practical steps you can take to improve your financial statements. This might involve obtaining market valuations of business assets (or the business itself) or improving efficiencies by upgrading technology and equipment.
Speak to your solicitor about ensuring your business’ internal legal documentation is up to date. This might include contractual documents involving staff, customers and suppliers, along with higher level documentation such as shareholder agreements and buy/sell agreements.
Consider engaging a business sale expert (which could be your accountant or solicitor) to undertake a pre-sale review of the business to identify and eliminate weaknesses and assist owners with determining a strategy to maximise your sale price.
Speak to your financial adviser about life after the business sale, which would include determining your ongoing financial requirements and how much you need to derive from a business sale to enable you to live comfortably. If there is a gap between how much you need and how much you have, work with your advisors on a strategy to close that gap.
Preparing for the future:
Finally, take some time to speak to your family members about your succession plans, and include estate planning in the discussion. In my experience, successful businesses create a level of structure that encompasses not only their business, but also their family unit.
The critical takeaway is that succession requires planning and it takes time. Implementing good business practices now and maintaining them will in effect help you to become ‘sale ready’ and the benefits of a smarter, better business can contribute to your personal prosperity now, as well as later, when you’re ready to step away.
For further information and specialised advice relating to tax and business matters often unique to the mining and resources sector, please contact Craig Barry on +61 (0) 7 3007 2000 or email firstname.lastname@example.org.
In the next article in our Disruption Drives Change series, Robert Lamb, lawyer and employment law adviser, discusses the need for clear procedures and policies to avoid confusion in disruption-affected workplaces.
Resources Unearthed is a solutions hub that provides integrated financial, legal, property and accounting and business advisory services for executives, professionals and business owners in the mining and resources sectors.
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