Succession planning is a fancy term that accountants and advisors use to describe a process to remove yourself fully or partly from your business.

It will happen to every business owner, but succession is rarely planned for and most often a reactive and rushed transaction.

While there’s no one-size-fits all approach approach to succession planning and it can be implemented for varied reasons, our experience tells us that the main events that require succession planning are:

• Securing key employees to future-proof your business and retain talent
• Retirement from the business
• Selling to investors to help grow your business through capital injections.

Here’s a summary of the process for approaching your business succession planning, and other relevant considerations for business owners.

The Process

1. Decide at what point in the future this transaction will likely occur, which provides time to create and implement the plan and, importantly, time to accept that change is coming
2. Now that you’re comfortable that change will occur, start by putting the plan into action
3. Ensure the business is trading well to maximise its value and make it easier for your successors to transition into the business
4. The business needs to be valued by an expert – some business owners like to do this at the beginning of the process, implement operational changes to improve profitability, and revalue the business prior to the transaction occurring
5. Have your business structure reviewed to ensure that you are minimising any Capital Gains Tax implications on the sale
6. If you are not retiring entirely from the business, determine how much ownership in the business you’re prepared to sell – in this scenario, you are selling some equity in the business
7. The above step needs to be considered together with the successor’s ability to pay for the shares (in the case of a company) – in some instances, you, the vendor, may discount the sale price or offer to be repaid over an agreed time (known as ‘vendor finance’)
8. Ensure that the successor has the right skills to succeed – e.g. do you need to mentor them, have they been provided with clear expectations of the role, do they need an updated position description or employment contract, what are the key performance indicators, and ultimately can the success of the transition be measured?

Other Considerations

Shareholders Agreement

Being involved with others will create challenges, this is guaranteed. Challenges can be mitigated if your documentation is thorough. One important document that all business owners should consider is creating a shareholders agreement. A shareholders agreement documents the relationship and expectations of the shareholders, and includes important considerations such as:

• Valuation of the business or shares
• Disposal of the shares
• Shareholders’ duties
• Dividend policy
• Additional capital requirements
• Future shareholders
• Dispute resolution.

Insurance for the Shareholders

Buy/sell agreements are an integral part of the succession planning process. It allows the business to continue to operate in the event of a traumatic health event of a business owner by providing funding to the departing owner or their estate. Using insurance to fund a buy/sell agreement can assist in this process.

Lambourne Partners can support you through the succession planning process by creating and implementing the succession plan with you, valuing the business, helping you create a shareholders agreement with the guidance of a solicitor, and assisting you and the business with your insurance requirements. To discuss your situation with us, please get in touch with us below or call (02) 4969 6600.