Succession Planning
Succession planning – if not now, when?
Succession planning is a critical strategic process that ensures business / wealth continuity and stability during leadership transitions.
It works to ensure a business’ value is maintained / strengthened for the next generation of ownership to effectively manage.
Traditionally we want to assess financial data from the last 3 to 5 years and then predict with financial modelling what the next 3 to 5 years will look like. This ensures enough time to implement systems and processes that support a profitable business to hand over. Targets and goals are set and reviewed to ensure the approach is strategic and streamlined. We work with internal talent, family members and external parties to ensure a fair and justified price for the sale or transfer of the business.
Recent examples of effective succession planning have seen business sales / transfers from parents to adult children and other family members, and sales to competitors who were hungry for market share and business synergies. Occasionally we activate the wind-up process however at the start this is the least preferred commercial model.
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Testimonials
Start succession planning at least 3-5 years before your intended transition date. This allows adequate time to identify and develop potential successors, transfer business relationships, and implement necessary operational changes. A longer timeline also provides flexibility to adjust your plan as circumstances change and helps maximize value. Early planning gives you time to improve systems and documentation, making the business more attractive to potential buyers or successors. Remember that unexpected events can force an early transition, so having a basic plan in place is always prudent.
The value of a business depends on what someone else if willing to pay for it and can also depend on how quickly the vendor needs to sell. Key considerations include client retention rates, profitability, growth trends, staff quality and retention, technology infrastructure, and standardized processes. Regular recurring revenue is generally valued higher than one-off projects. Consider getting multiple independent valuations and remember that the final value often depends on the succession method chosen (internal succession vs external sale) and payment terms. Industry norms, rates and averages will also play a significant role.
Both options have distinct advantages. Internal succession often provides better client retention and staff stability, as relationships and working methods remain consistent. It can also be structured over a longer period, allowing for smoother knowledge transfer and transition of responsibilities. However, external buyers might offer higher valuations and immediate payment. They may also bring fresh perspectives and additional resources to grow the practice. The best choice depends on factors like having suitable internal candidates, your desired timeline, financial needs, and whether maintaining your business’ current culture and approach is a priority.