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How to develop a succession plan
Succession is about ensuring the ongoing success of your business through a timed transfer of ownership and control. A succession plan should define exactly who will take over the business, when they will take over the business and how they will take over the business.
For many owners, the idea of handing over control of their business can be confronting. Family Business Australia can help you deal with the emotional impact of succession as well as the practical details of your succession plan.
Planning your succession
You should create your succession plan well in advance of actually leaving your business. Research shows that succession can take more than 2 years to plan. Ideally, your succession plan should be part of your overall business plan and reviewed regularly. It should be flexible enough to change according to your circumstances.
Choosing a successor
Your first priority is to identify a likely successor. Generally, your succession plan will be either:
- a family succession plan, which involves setting up a trust, gifting or selling the business to family members
- a non-family succession plan, which involves selling your business to an employee(s) or other owner(s) — often called a management buyout.
What to include in your succession plan
In general, your succession plan should address financial, legal and operational strategies for your exit from the business. While the details will be different for every business, it may help to answer the following questions as you develop your succession plan:
- When do you plan to leave the business?
- Will you be completely removed from the business or do you want to stay involved in some aspects?
- What are your successor's responsibilities?
- What training or development will you organise for your successor(s)?
- What are the risks involved in succession?
- What will the business look like once you leave? Who will step into key roles?
- Are all your employee contracts, work agreements etc. up to date?
- Are your plant and equipment in good order?
- Have you talked to key suppliers and customers about the succession?
- Have you considered intellectual property and privacy policies?
- Are you selling the business to your successor(s) or gifting it?
- What is the market value of your business or your share of the business?
- What are the financial and tax implications of succession?
- What insurance policies do you currently hold in the event of a disability, death or injury?
- How much income do you need to retire/leave the business?
- Will there be a change in legal structure when you leave?
- Do you need a legal document that dictates the terms of the succession?
- Do you need to change/transfer any registrations, licences or permits?
It is important to consult a professional business adviser when developing your succession plan. You should also get input from your family and key people in the business, especially your likely successor(s).
Implementing your succession plan
Implementing your succession plans means setting a realistic timetable to meet key milestones. Milestones in the succession plan should include:
- identifying a successor
- business housekeeping (e.g. key dates for financial and legal requirements)
- successor training
- staged transfer of responsibilities
- final handover.
Make sure to communicate this timeline to everyone involved in your business so they understand what is happening and when. Stepping back from your business can be an emotional and difficult experience, so having clear goals and time frames can help you to let go.
- Read CPA Australia's guide to exiting your business (PDF, 235KB) for more information about succession planning.
- Download a succession plan template and guide.
- Find out about selling or closing your business if succession isn't the right option for you.
- Read the Australian Taxation Office's exiting a business guide.
- Find out how to manage people through change.