What is succession planning?

Succession planning is the process of identifying and developing individuals within your organisation that have the potential to fill leadership roles when key leaders leave the business – be this in the day to day client management, leadership and ownership roles. It involves a strategic approach to transitioning leadership to ensure both exiting and entering parties are set up for success, as well as providing a pathway to acquire the equity in the business overtime.

The planning process covers off on items such as:

  • What are the key roles required going forward in the business
  • What training does the person require to be successful in the higher role
  • What coaching can the existing business owner provide
  • What financial knowledge is going to be required
  • What is the valuation of the business, why and how can this be impacted
  • Timeframes for transferring knowledge and equity

Effective succession planning ensures the outgoing business owner knows the pathway to their retirement, the timing, the expectations of their time and contributions up to their retirement date, the likely capital proceeds, and even the capital gains tax treatment of these payments.

Similarly, an incoming equity holder knows what is required of them – their input, further qualifications, KPIs, capital outlay and ongoing role.

It is almost impossible to document the event from the very beginning in the exact pathway, however it is important that a realistic plan is agreed to and updated as needed. This may mean that along the way equity transfers are faster or slower than originally planned, an unexpected event with either party impacts the timing, or KPIs are adjusted. What is important is the original consensus of the plan – the objectives, the likely plan and the milestones. With the right people and adequate timing, we find most succession plans work.

The most successful plans are those created with time – 5 or more years out from the retirement of the business owner. These plans allow time to realise value the value in your business, transfer knowledge and relationships and finance the acquisition.

If you would like to discuss your succession planning needs, please contact our office for a free discovery call.

About the Author
Fiona Ettles , Hobart
Fiona is enthusiastic about informing and reassuring clients of their financial position, be it in regard to the value of their businesses, or their tax returns. She enjoys working with clients to understand their problems, consider solutions and implement plans to better their lives, whether this be in the short or long term.
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