Many private business owners are reluctant to invest in a succession plan they feel they won’t need for many years; however you will know better than anyone that getting your business to its current level took time and commitment. A succession plan needs the same attention.
A solid exit strategy provides your business with a greater likelihood of long-term survival and ensure a better financial return. Without an effective plan, the future of the business may be put in jeopardy, especially when times get tough or your circumstances change unexpectedly. Also, a lack of preparation can create adverse tax consequences.
For example, in the aged care sector we are seeing many small to medium sized businesses dealing with staffing and financial pressures. Owners are heavily involved in the day-to-day operations of their facilities, unable to focus on growth strategies or on their own health and wellbeing. Over time, this is unsustainable; sooner or later it will begin to affect the overall wellbeing of other staff, the business itself and its residents.
Burn out is a reality throughout the industry and being well prepared for life’s unexpected events, as well as for the inevitability of growing older, can give you peace of mind and help to underwrite the future success of the business.Having an effective succession plan in place can also:
- help maximise the value of your business
- improve profitability and the sale price
- help you analyse your organisation’s strengths, weaknesses and threats
- help you plan for unexpected events and adjust to changing circumstances
- enable you to transition the business on your terms not someone else’s
- provide a strong blueprint comprising clear options and choices.
Start early with a focus on self-care
Succession planning isn’t a one-time event, it’s a process that should begin long before you plan to exit the business, so start working on your plan several years in advance. Don’t wait for a year of super profits, or a period of weak performance. Start early, so you can transition on your own terms, while you are in control with the widest range of options available to you.
This is particularly important in the aged care sector where operators rely on selling their business as an exit strategy. They are vulnerable to an inadequate supply of skilled labour, and a buyers’ market that is more focussed than ever on strong cashflows.
Begin your planning by understanding your current personal circumstances. Few business owners allow themselves this luxury, but it’s critical to establish a personal agenda and identify catalysts for change. You need to honestly consider:
- how long you would like to stay active in your business
- your health, wellbeing and the level of energy you bring to your business
- your must haves, such as how you will finance your retirement
- the current and future needs of your immediate family
- whether your personal aspirations are aligned with the objectives of your business
- your appetite for risk and how it’s aligned with your business’s strategic direction
- the capital requirements for you and your business
- the skills, experience and capability of your management team and/or your family, and whether they are capable of operating and growing the company without you.
Understanding your personal bottom lines will shape your thinking about which approach is best for you.
Develop your personal plan
There are different succession and transition paths you can take to exit your business. Understanding the advantages and disadvantages of each is an important initial step in developing a plan that’s right for you. Some of these include:
- continued family ownership and management
- retaining ownership as an investor rather than as an owner/manager
- selling part or all of your ownership stake
- winding up the business.
You need the right support team around you to help develop your personal plan. Helping to lead that team and work alongside you should be someone who understands the overall strategy you are working towards. Someone who can develop a decision-making framework to help drive the agenda and keep everyone, including you, focussed on progressing towards your goals. Your framework could include:
- how you communicate with and involve other stakeholders/family members
- dealing with your or a family member’s immediate health and wellbeing needs; perhaps you need some time out of your business just so you can think and plan
- estate planning for you and your immediate family
- a contingency plan to deal with unexpected life events - does someone know where the keys are?
- a personal financial plan – have you got a retirement nest egg, or is that a requirement of your succession plan? What are your financial goals?
- a tax plan - how will tax impact your financial goals?
- a plan for the business.
Develop your business plan
Understanding where your business is at and what it is capable of will strongly influence whatever succession path you take. When you undertake a current state review, ask yourself:
- how good is the financial base of the business?
- is there a growth story and growth strategy, and is that plan being implemented?
- is the ownership structure tidy, and are all necessary documents in place and up to date including shareholder agreements and financials?
- is there appropriate tax governance and planning in place?
- does the business routinely meet all its legal and regulatory obligations
- are the right people working in the right positions within the business?
- how much does the business rely on me?
Whatever path you take, and especially if you decide to sell, allow time to ensure the business is investor ready. The better prepared you and the business are for transition, the more likely you are to achieve a successful succession as well as a fair price if you’re selling. Think about how the business operates, the information you can provide to potential buyers about the performance of the business, as well as the quality of your systems, procedures, and assets. Ask yourself:
- could you respond to an unsolicited approach for your business?
- can you articulate the key strengths and growth prospects of your business?
- how would the business cope without you?
- do you have a clear strategy for you, the business and your family that allows you to transition out in a controlled and healthy way – in other words, could you get out alive?
Aged Care businesses operate in a highly regulated industry and the level of compliance they must satisfy from end to end in their business is significant. Systems, people, and processes need to be at or above industry requirements on an ongoing basis. Building the right habits within the business is critical to sustaining the level of performance aged care businesses need to meet the needs of their residents, staff and regulators. This means your business plan needs demonstrate the required standards of care and infrastructure if you want to the succession process to go smoothly.
Although succession planning can be simply defined as the process of transferring the control and ownership of a business, developing and executing a succession plan is not nearly so simple. For a business owner, that planning involves dealing with some challenging questions about your personal circumstances and your business. If you take a methodical and thoughtful approach to that process, and start early (it’s never too early!) you can achieve that transition with a strong healthy business and your own health, allowing you to enjoy the fruits of your efforts for many years to come.