Succession Planning

How will it end without a Succession Plan?

All too often, private businesses thrive on the energy of the founders who are too busy to make plans for the future.  When the founder retires (or leaves the business through illness or death), the new generation of owners may be totally unprepared or unsuited for their new responsibilities as business owners.  In other instances, an ‘involuntary’ successor may not be interested in assuming management control of the business.

In our experience, where succession of the business has not been thoroughly addressed, a viable business may be sold at a fire sale price to a competitor or may slide from growth to survival to failure.  Loyal employees jobs may be lost; many of the best employees may see the warning signs and leave taking key skills and knowledge with them.  Your retirement plans may be shattered along with the legacy you worked hard to build.

Black Pearl Private Clients has the passion and expertise to put in place structured processes to prevent this disastrous outcome from occurring.

The Succession Planning Process

Black Pearl Private Clients has the knowledge and experience to guide you through the succession planning maze and tailor a succession plan that meets your goals and objectives.

Black Pearl Private Clients’ succession planning process involves the following key steps:

1. Establish your advisory team
2. Evaluate your current position
3. Set your goals and timeline
4. Understand the value of your business
5. Identify your successor
6. Plan your strategy
7. Undertake tax, legal and accounting analysis
8. Assess and plan for any funding requirements
9. Communicate the plan
10. Implement the plan

Benefits of a Succession Plan

The benefits that result from developing, documenting and implementing a structured succession plan include:

• allows for your wishes to be achieved by granting you control over the succession process
• provides peace of mind to you, your family, your employees, your customers and your suppliers
• enables owner(s) to achieve business and personal goals by identifying and planning for them
• provides for more succession options by encouraging long term planning
• preserves family relationships and fosters employee loyalty
• enshrines business legacy by ensuring business continuity in the case of an unexpected event
• protects and distributes your estate in accordance with your wishes by co-ordinating and integrating your business exit objectives with your estate plan
• assures financial security for you and your family by preserving your wealth and maximising (after tax) business sale proceeds

Assessing The Costs

Costs of implementing a succession plan

• Cost of advice to develop and document the plan
• Cost of reviewing the plan

Costs of not implementing a succession plan

• Erosion of wealth through disputes and litigation
• Destruction of business value through diversion of management attention
• Potential for a business fire sale in order to meet the needs of claimants
• Creating tax liabilities that could have been avoided
• Family relationships harmed or destroyed
• Loss of key staff due to career uncertainty
• Loss of key clients and suppliers

What Issues Are Addressed?

The issues that the Black Pearl Private Clients’ succession planning process will guide you through include:

• When should you begin the exit/succession planning process?
• What is your exit timetable?
• Should you transfer ownership, management control or both?
• Whom do you want to transfer ownership to?
• How should the sale proceeds be structured?
• How much is your business worth?
• How can you be sure you will receive this value?
• What are the most important things you can do to build up the value of your business?
• What different funding sources and income streams will be used to pay you for your equity?
• What methods can be used to legally manage the tax impost on sale or transfer?
• How can you leverage and coordinate your business assets with your personal assets to maximize personal wealth and available retirement income?

Determinants Of Success

There are a number of common factors that are present in any successful succession plan.  These include:

• starting the process early
• establishing a clear succession timeline with the current owner willing to accept retirement
• clearly identifying a competent successor
• a willingness to foresee change and to plan for it
• investing in the business in priority to lifestyle objectives
• using non-family board members, consultants and advisers
• creating a family council to manage succession
• open communication between all parties
• the succession plan is in writing and is fair and reasonable to all
• there is a Plan B

Black Pearl Private Clients has the process and expertise to make sure these common success factors are embedded in your succession plan.

Vulnerability To Failure

Like the common traits that can be found in any successful succession plan, there are always a number of common mistakes that permeate through a failed plan.  These include:

• the business is driven by personal / lifestyle goals rather than strategic business goals
• the business performance is poor, resulting in a lack of potential successors or buyers
• the business is overly reliant on the owner, which makes them difficult to replace
• succession has not been considered and planned sufficiently in advance

Experience proves that failing to seek advice and plan your exit or succession from the business will result in poor decisions being made due to a lack of essential information and because of time pressure.

Excuses… Not Reasons

At Black Pearl Private Clients, we believe that there are no valid reasons for not establishing a viable succession plan – there are only excuses!  These excuses include:

• owner is unable to face retirement
• owner suffers from ‘control syndrome’
• owner is too busy
• the required decisions are too difficult
• the process may lead to disputes and litigation
• the restructure costs are too high
• owner is unable to identify an obvious successor

While some of these excuses may, on the face of it, appear to have some validity, it is our position that the issue is not going to go away.  The best way to deal with the issue is to identify it, assess the options available and make an informed decision to undertake a deliberate course of action.