Research from MYOB reveals that almost half of Baby Boomer SME owners intend to exit their businesses within the next one to five years, yet a significant number have not established a formal succession plan.
Without a clearly documented strategy, the transition from a seasoned owner to a new and less experienced operator can be disruptive, potentially impacting business continuity, staff retention and overall enterprise value.
What Is a Succession Plan?
A succession plan is a structured framework that sets out how ownership and management will be transferred. It defines the timing, legal and financial arrangements, and provides clarity to all parties involved in the transition.
Four Critical Inclusions for an Effective Succession Plan:
- Exit Terms and Post-Exit Role: Outline the departing owner’s ongoing involvement, if any. Specify whether they will take on a consultancy or advisory role, and detail the steps for formally transferring operational and legal control to the successor.
- Transition Schedule: Develop a clear timeline with defined milestones for knowledge transfer, operational handover and completion of the transaction. This helps to minimise disruption and ensures stakeholders remain informed throughout the process.
- Successor Selection: Identify the successor – whether family, internal staff or an external purchaser – and set out any training or mentoring required. Include a clear handover of authority to ensure a smooth change in leadership.
- Financial Structure: Determine the business valuation and specify the commercial terms for the transfer. Document the payment structure, whether a lump sum, staged payments or equity share arrangement, to provide certainty for both parties.
To safeguard the business and protect your financial interests, it is advisable to engage accountants, legal advisers and business consultants when drafting and implementing your succession plan.
