Seven Steps to Successful Succession

How is a Succession plan created?

The reason that most business owners don’t have a succession plan is that they don’t know where to start. Ascend Business partners have developed a systematic approach, called the “Seven Steps to Successful Succession”, to work with business owners to increase the value of their business and improve their profits. This allows them to exit their business with a valuable asset they can sell, transition to the next generation, or provide them with an ongoing passive income.

Seven Steps to Successful Succession

Step one – Business readiness

Where is your business at today in terms of value, profitability and operational efficiency? Knowing the value of your business is an important step in understanding how it contributes to your overall wealth and will determine if you in fact have a “wealth gap”. An extensive review of the key business value drivers, and operational factors, will provide insight into what can be done to increase the value of your business. This step also reviews your business structures to ensure they are appropriate for your longer term exit strategy, and assesses how attractive the business is for future sale or ownership transition

Step two – Transition planning

Where are you at in your personal journey? You created your business to fund a lifestyle and create a valuable asset that one day you can sell or transfer, as a way of increasing your wealth. Often the biggest challenge for business owners is to know when is the right time to step away from their business, even though it is inevitable that one day we will all leave our business. A good succession plan will start with developing an understanding of what your personal goals are, and then determine how your business will help you achieve those outcomes. A thorough consideration of the various exit options available to you, including sale of business, transition of ownership to family or management, or creating an ongoing passive income, will help you choose the best way for you to extract wealth and live the life of your choosing.

Step three – Value Enhancement

Do you know how to increase the value of your business? There are a number of drivers available for you to maximise the value of your business. Identifying and implementing these drivers will give your business the best chance to stand out from the crowd and be sold for a premium. The reduction of risks faced in the business is one of the best ways to create an immediate increase in value, as new owners will be prepared to invest at a premium in return for reliable ongoing business income. You can mimimise risk by ensuring you have good financial records and reporting, an appropriate business structure, protection of assets and ensuring you have the most appropriate insurance covers in place. The premium value drivers to maximise business value include: reducing owner (and key staff) dependency, creating a sustainable competitive advantage, putting in place strong governance systems and positioning your business for strategic acquisition.

Step four – Business strategy and direction

Do you have a clear vision for the future of the business? Having a clear picture of the future of the business is important for future owners so they can be confident that their investment in your business will provide future expected returns. A clear vision will capture what the business stands for and why it exists. In turn this helps businesses to be more profitable and valuable as it will inspire and motivate employees, and provide guidance for key decisions to be made by management and staff. Business strategies that support the attainment of that vision ensure businesses stay on track to achieve their objectives and become stronger and more valuable in the process.

Step five – Business performance

Does your business provide the appropriate level of return for your investment of time and money?

Creating a high performance business requires business owners to have a clear focus on product/service innovation, growth activities, financial management, attracting and retaining good people, and being well systemised. Regular business performance reviews, that utilise the skills and knowledge of management and appropriate advisers, will create an environment focused on constant improvement. Best business practice typically ensures a monthly review of financial reports and key performance indicators, and key staff taking ownership of areas identified for business improvement.

Step six – Transition implementation

Do you know how to extract the wealth you have created in your business? If you choose to sell your business then it is essential that you properly prepare for this process. Selling a business for maximum value requires the creation of an information memorandum, completion of reverse due diligence and a clear identification on the buyers who will be prepared to pay the most for your business. Understanding the potential implications for capital gains tax is also necessary so that you will know your estimated net proceeds from sale. Transitioning ownership to family or management requires careful assessment of the skills and knowledge that the future owners need to successfully run the business. Implementation of any required training and development activities can take time to complete. Whichever option is right for you and your business it is important that you properly plan the steps required, give yourself enough time to implement the steps and utilize the right advice every step of the way.

Step seven – Live your desired lifestyle

How do you want to live the rest of your life? Some business owners will want to retire, others will want to have some ongoing involvement in their business and others may want to take on another business venture. If you have taken the time to follow the steps outline above your transition to the next stage of your life will be smoother and more successful. You will have also given yourself the best chance to create a lifestyle you have always dreamed about.