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Whether you’re a founder of a thriving enterprise or a small business owner with big dreams, one thing is certain: your business won’t run itself forever.
Succession planning is often overlooked until it’s too late, but a well-thought-out exit strategy can be the difference between a smooth transition and a chaotic scramble. So, when should you start planning? What should you consider? And how do you avoid common pitfalls?
Here are the top tips to help you prepare for a successful business succession.
1. Start early – much earlier than you think
The best time to start succession planning is now. Ideally, you should begin at least three to five years before your intended exit.
This gives you time to groom successors, restructure your business if needed, and align your financial and personal goals.
Early planning also allows for flexibility if circumstances change – whether because of market shifts, health issues, or family dynamics.
2. Align your business goals with your life goals
Succession planning isn’t just about handing over the reins – it’s about ensuring your business supports your future lifestyle.
Do you want to retire completely, stay on as a consultant, or pursue other ventures?
Your exit strategy should reflect your personal aspirations and financial needs. A financial planner can help you model different scenarios to ensure your business exit funds your next chapter.
3. Understand valuation principles to maximise sale price
Knowing what your business is worth and how you can increase that value is critical. There are several valuation methods, including asset-based, earnings-based, discounted cashflow and market-based approaches.
It is important to seek advice in choosing the right method and apply valuation principles that enhance your sale price. This might involve improving profitability, reducing risk, or showcasing your business’s competitive advantage.
4. Ensure your financial records are clean and clear
Buyers and investors want transparency. Quality financial records are essential for due diligence and valuation.
Remove personal assets from the corporate structure, separate business and personal expenses, and ensure your books are professionally maintained.
This not only builds trust but also speeds up the sale process.
5. Reduce the business’s dependence on you
If your business can’t run without you, it’s less attractive to buyers.
Start delegating key responsibilities, document processes, and build a strong leadership team.
The goal is to create a business that thrives independently; one that’s scalable, sustainable, and resilient.
6. Build strong governance and legal frameworks
Governance matters. A clear shareholders agreement and buy-sell agreements are essential to avoid disputes and ensure a smooth transition.
These documents outline how ownership changes will occur, how disputes will be resolved, and what happens if a partner exits unexpectedly.
They are especially important in family businesses or partnerships.
7. Identify and mitigate key person risks
Is there someone in your business whose departure would cause major disruption?
That person might be you or a top salesperson, technician, or manager.
Key person insurance, succession training, and cross-training can help reduce this risk and reassure potential buyers or successors.
8. Surround yourself with a professional team
Succession planning isn’t a solo sport. You’ll need a team of experts including a financial planner, accountant, lawyer, and possibly a business broker.
These professionals can help you navigate tax implications, legal structures, valuation, and negotiations. Good advice is an investment, not a cost.
9. Ask: does your business have a sustainable competitive advantage?
Buyers want businesses that can grow and compete. What makes your business unique? Is it your brand, customer base, intellectual property, or operational efficiency?
Identifying and strengthening your competitive advantage can significantly boost your valuation and attract the right buyer.
10. Plan for the unexpected
Even the best-laid plans can go awry. Market conditions may change, successors may back out, or health issues may arise.
A contingency plan ensures your business can weather surprises. This might include emergency succession protocols, insurance coverage, or alternative exit strategies.
Succession planning is more than a financial exercise, it’s a strategic roadmap for your legacy. By starting early, aligning your goals, and surrounding yourself with the right team, you can exit your business on your terms and set it up for continued success.
Whether you’re planning to sell, pass the business to family, or transition to a new leadership team, a financial planner can help you navigate the complexities and make informed decisions.
After all, your business is one of your greatest assets – make sure it works for you, even after you step away.
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The Money & Life website is operated by the Financial Advice Association Australia (FAAA). The views expressed in this article are those of the author and not those of the FAAA. The FAAA does not endorse or otherwise assume responsibility for any financial product advice which may be contained in the article. Nor does it endorse or assume responsibility for the information.
