Next-generation plan crucial
STARTING a business is a momentous event in any small company owner’s life.
What follows is a long, consistent effort to make the business a success and keep it that way.
But when it comes to deciding what to do with that company when the founder has had enough, more thought and energy is required.
Small and medium-enterprise owners say business planning is their biggest concern while succession planning is their second biggest worry, Prosperity Advisers’ 2016/17 SME Research Report found.
A business can be all-consuming mentally, physically and financially. An owner’s home and super are often tied up in the company’s capital and if they want to realise that capital they need to put a strategy in place very early, according to Allan Mckeown, cofounder and chief executive of business and accountancy firm Prosperity Advisers.
“Many might have an idea (about succession) in the back of their mind but those that make a plan will incorporate it as a part of due process and have a proper rigorous think about it,” Mr Mckeown said.
He said there were two aspects to succession: managerial succession where you recruit talent into the business to grow it, or to eventually run it; and how to realise the capital invested in the business so you can retire.
No matter how small your operation, Mr Mckeown advised seeking external advice from an expert or a trusted mentor.
“Have a catch-up every three, six or even twelve months about how the business is going and what your options are,” he said.
It is also important to have a solid understanding of exactly how much your business is worth and, if you are planning to sell it, not to leave it too late.
“People have an opaque view of what their business is worth. You might be forced into selling it sooner than expected due to illness or financial misfortune. That creates pressure and you may have to sell at a value that’s less than you were hoping for,” Mr Mckeown said.
“As early as possible you need to start diversifying your investment, which is hard when you are investing everything into growing a business. That might include adding money to savings, super or an investment property.”
Family business adviser Philip Pryor agreed that planning well ahead was key to an effective succession plan.
“In a family business you need to be thinking at least 40 years ahead,” Pryor said.
If you do plan to pass the business on to the next generation, or hire an external chief executive to run it, you need to make sure the founder has a role under the new leadership.