Too Late For Succession Planning For Business Owners In Australia? You Can Still Do Something About It

What is succession planning?

More than 60% of small business owners are approaching retirement age, according to the ASBFEO’s Small Business Counts report from December 2020.

NAB Private Wealth research found that nearly half of small and medium business owners were over 50, with 22% within five years of retirement age.

And the truth is: they’re not ready to hand over their business to someone else. The short and bleak repercussion is that those businesses will, said simply, stop operating.

In 1 to 5 years, owner-founded businesses will be exiting; those founders, aged 60 to 78. Of those exits, 87% are due to retirement.

Should you be concerned?

Why should Australian business owners care, especially if you’re not near retirement age?

Those who are about to retire and exit with no plan: is there really still something to be done about it?

 

 

What Should a Complete Succession Plan Cover? The Four Pillars

A complete plan covers four areas:

1. Ownership and equity
2. Leadership
3. Operational continuity and transferability
4. An emergency or unplanned exit

Your accountant and lawyer will handle much of the ownership and tax work. What will have to come from within your business is, by all means, the operational piece.

1. Ownership and Equity Transition

Who will own the business after you? How will the transfer be paid for?

A buy/sell agreement sets out the terms for buying out an owner’s share. Funding might come from existing equity, vendor finance, or an insurance policy such as key person insurance.

Tax needs to be considered at the same time.

CGT Concessions From the ATO:

 

The concessions have different eligibility requirements.

Have your accountant confirm which ones apply to your business before using them when working out a sale price or exit date.

2. Leadership Succession

For leadership, the cake is cut into three: a family member, a management buyout, or an outside buyer. With each one is a change in preparation.

Family Succession

Family successors, by and large, take years to learn the ropes of the business. Until they gradually assume leadership and take over decisions. There are exceptions, especially those raised with the expectation that they would one day inherit the family business.

They may have grown up around its customers and employees. They’re accustomed to daily workings, maybe even experienced in them, giving said successors a familiarity that an outside successor would need time to develop.

Management Buyout

When existing managers plan to buy the business, they need to understand both its day-to-day operations and its financial position. They may already know the staff, customers, and internal processes, but taking ownership brings new responsibilities, from managing cash flow to making decisions about the business’s future.

Preparing for the buyout gives them time to build the financial and commercial skills the role requires.

Sale to an Outside Buyer

An outside buyer will need to assess how the business operates and how much it relies on the current owner.

Are customer relationships spread across the team? What about routine decisions; who makes them? These details can affect how readily the buyer can take over and run the business, along with the presence or absence of documented processes.

 

Free Consult. No Pressure.

Free Consult. No Pressure.

We’ll answer any question on how to hire world-class, high performing, vetted virtual staff to cut your labour costs by 60-70%.

First Name: *

Last Name: *

Contact Number: *

Email: *

Company Name / Website: *

Role(s) you wish to hire: *

By submitting this form, you agree to receive SMS or phone communications from Remote Staff, Inc. Message & data rates may apply. Reply STOP to opt out.

 

#3. Operational Continuity and Transferability

Let’s use “quoting” as an example here.

You might know from experience when a job needs a higher margin, or which details need checking before a price goes out. They’re not written anywhere because you just… “know it.”

You can add “by heart” to that phrase, showing how truly passionate you are about your business. However, if you’re ready to give your seat away, the next person in line can’t exactly extract all that information from your head.

To avoid this dilemma, focus on:

• Processes: Write SOPs for sales, quoting, delivery, invoicing, and onboarding, clear and detailed enough so that someone else can follow them well (without needing you on speed dial)
• Relationships: Introduce a second contact to major clients and suppliers; give that person regular responsibility for the relationship before the handover
• Decisions: List the approvals that currently reach you and set spending and pricing limits where appropriate; assign those decisions to named people
• Admin: Move scheduling, inbox management, bookkeeping and reporting into roles that can continue after you leave

Write down every task you personally do or approve.

Then sort each one into document, delegate, or stop.

#4. Emergency Exit / Unplanned Exit

Retirement gives you time to choose when you leave. An accident or illness, though, can take that choice away in a heartbeat.

Keep in mind, and in your files (hard copy plus soft copy, or in a secure cloud): updated record of the information someone would need to keep the business operating.

Include system access, bank signing authorities, key clients and suppliers, advisers, insurers and insurance renewal dates. Two words – password manager.

Extra Tip: Name a deputy. This person may not be the next permanent successor, but they need enough information and authority to ensure the business stays on its feet while the longer-term arrangements are decided.

 

Why do business owners delay succession planning?

 

When Should Succession Planning Begin: Succession Plan Timeline

Still running the business and finally going on that round-the-world trip with your loved ones, vacationing for good, not yet imminent?

A three- to five-year runway gives you time to make changes while you remain at the helm.

Phase 1: Valuation and Starting Review (3 to 5 Years Out)

Get a valuation from a qualified valuer or your accountant.

Then look at the things that could affect that value.

How dependent is the business on you? Are the books in good order? Are the important processes documented? Does too much revenue come from a small group of customers? What stops when you take a week away?

Write down the problems, and work through this list before a sale or handover.

Phase 2: Process Mapping and Delegation (2 to 3 Years Out)

Choose one part of the business and transfer it properly. You could start with quoting, then move through invoicing, onboarding, scheduling, or another function.

Record the task while someone’s doing it. Turn the recording into written instructions. Have the person taking over follow those instructions while you are still available to answer questions.

The first version won’t be it, and that’s okay. Fix it and try again.

Do this across the functions that currently depend solely or almost solely on you.

Phase 3: The “4-Week Step-Back” (1 Year Out)

This one’s a self-test / business-owner-to-business text. Take four weeks away from daily operations. Away means “away.” From your work phone and email. Answer only when there’s genuinely an emergency or something urgent.

Before you leave:

1. Tell the team which member has the authority to make this or that decision while you’re away.
2. They’re to record all communications (voice or non-voice) and approval requests that still reach you.
3. When you return, do the math; the division, to be specific – separate what genuinely required your attention from the things that needed a procedure, or those that merely needed clearer rules or another person.
4. Fix those dependencies before the handover.

The result is a list of what the business continues to expect from its owner.

Phase 4: Final Handover and Legal Execution (The Exit)

Your lawyer and accountant can finalise the transfer documents and tax treatment. Nevertheless, the people dealing with the business need clear information. Tell clients, suppliers, and staff who will take over their relationships. Keep them in the know by giving them the new contact’s details.

Introductions are helpful, too, to de-pressure any tension your team might be feeling during this transition.

 

Family Succession or Outside Sale: How Your Exit Route Changes the Plan

NAB (National Australia Bank) found that nearly half of small and medium business owners expected retirement to mean an ending of their businesses.

They also cite that family succession expectations are changing, with potential successors pursuing careers that deviate from their parents’ line of work.

A few problems to deal with head-on in family business succession:

• Which family member takes over?
• What happens to children who don’t work in the business?
• Who makes decisions during the transition?
• When does the outgoing owner stop making them?

The ASBFEO (Australian Small Business and Family Enterprise Ombudsman) and Family Business Australia have produced an introductory guide to family business succession planning. Feel free to use those as guides.

Clean financial records help. Written procedures help. Staff who can run the daily operation without your help.

What if I don’t have a successor yet?

Start documenting work that’s not documented yet. We promise this is the professional, data-backed answer. The ones with no SOPs are based on your personal experiences in handling the business all these years. Financial records should be documented and organised, too.

Give other people responsibility for customer and supplier relationships. Move routine decisions away from your desk.

The business will be easier to transfer because you prepared it to operate without one person.

Succession Planning Template:

Here’s a sample succession planning checklist. Use it as a starting template for your succession plan. The start dates assume a three- to five-year runway.

This template is a planning aid and does not replace legal or tax advice.

Extra Read: What business owners should know about ATO Crackdown and Data-Driven Audits.

 

How to Value a Business Before Selling or Transferring It

A business valuation estimates what a business is worth at a particular point in time. It can help you set a sale price, negotiate a transfer to a family member or employee, or work out whether the proceeds will support your retirement plans.

The figure depends on: What your business owns. What your business earns. What a buyer can reasonably expect from it after the turnover.

Following that triplet cadence, the Australian Government guidance outlines three common approaches to how to value or put a price on a business prior to selling:

Comparing similar businesses

Valuing assets against liabilities

Estimating value from profits and return on investment

Gather your financial statements (the most recent five years, according to Business Queensland), cash flow records, debts, asset details, and information about the business’s goodwill and intellectual property. Once you have these, only then should you even approach a broker.

Owner Role vs Staff Capabilities and Dependence

As is the theme of this entire article about succession planning strategies, and without sounding too redundant, lay bare how much of the business relies on you personally. If major customers deal exclusively with you, staff need your approval for everyday decisions, or the business depends on your specialist knowledge, a buyer may have concerns about how it will perform after you leave.

Business Queensland’s valuation guidance specifically includes staff capabilities and dependence on particular people among the factors a valuer may examine.

Extra Read: Learn about Australia’s Tax Relief for Small Businesses.

 

 

What to Do NOW: Reach out to an accountant, qualified business valuer, or business broker – they can help assess the appropriate valuation method for your type and size of business.

Independent valuation is useful as well. Something to consider when you and a prospective buyer have different expectations of the price.

 

Business Succession Planning and Tax: CGT, GST and Other Costs

Always stay in the headspace of “not the whole amount.” That is, you won’t be taking home the entire sale price (whether in business planning succession or just plain business, it’s kind of unspoken knowledge).

Your cut will be “cut” with tax obligations and professional fees. Anything else within the terms of the transfer will have its own slice.

Capital gains tax (CGT) in Succession Management Plan

One of the first things to discuss with your accountant. Depending on your circumstances and the structure of the sale, you may qualify for one or more of the ATO’s small business CGT concessions.

Eligibility conditions apply, so don’t assume a concession will be available simply because you own a small business. Your accountant should assess the options before you settle on a sale structure or date.

Goods and Services Tax (GST) in Succession Planning Process

May apply when you sell business assets.

If you sell the business as an ongoing operation, the sale may be exempt from GST, provided both you and the buyer meet the ATO’s requirements.

These include a written agreement between buyer and seller, the buyer being registered or required to register for GST, the supply of everything necessary to continue operating the business, and the seller carrying on the business until the day of the sale.

The conditions need to be satisfied. (Australian Taxation Office)

Budget For the Costs of Completing the Transfer

What’s in the deal may change these, but the cost list usually includes:

• Legal advice and preparation of the sale or transfer agreement
• Accounting and tax advice
• Business valuation or broker fees
• Costs associated with transferring leases, licences, permits or other agreements
• Any agreed buyer training or handover period

The Australian Government‘s guidance mentions professional advice, valuation, sale negotiations, contracts and final tax obligations as parts of the selling process.

Ask your accountant and lawyer to estimate these costs alongside the expected sale proceeds. That gives you a more realistic figure to plan around, whether you’re selling to an outside buyer, transferring ownership to family or arranging a management buyout.

Tax treatment and transfer costs vary with business structure and details of the deal. Get advice on your own circumstances.

Pressured or locked in a timeline to sign an agreement? Don’t sign. Period.

 

Business Succession For Your Business, But The Work Needs Support

Remote Staff for Succession Planning and the Years Ahead

Don’t wait until retirement is on the horizon to create a business succession planning strategy. You’re here, reading this article now. So do it now. We’re here to support you.

Remote Staff has been pairing Australian businesses with professionals for the specific work they need. Whether it’s for planning your succession or for placing more members in your hybrid or remote team, even as you hand over the business.

Virtual assistants, appointment setters, legal staff, bookkeepers, project managers, business services, architecture and engineering, marketing automation, digital marketing, and so much more. We’ve got every industry covered.

The aim is to build a business that gives you more choices about your own time, both now and when you’re ready to step aside.

 

FAQs

Extra Read: Learn about Australia’s Right to Disconnect Law – business owner guide.

 

What Is the Success Rate of Succession Planning in Australia?

You’ll find that out yourself, and now. Now’s the best time to get your succession planning checklist going.

Now, when it’s still relatively easy to put all of your in-head SOPs on paper. Now, when your employees and vendors can be familiarized with each other and do business together – without your constant oversight.

The fastest way to bring more people into your team for strategizing succession and to grow your workforce offshore. A workforce that’ll be with your local team members even after you give the keys to the new owner later on.

Planning for succession isn’t just for retirees. It’s for every business owner who wants to make sure that the business they’ve worked so hard to build will be in good hands no matter who’s in charge.

Request a Callback today.

↑ Back to Top