Leaving a business isn’t easy. Whether you’re retiring, changing careers or transitioning a staff member out of your organisation – making the exit as smooth as possible should be your #1 priority.
Unplanned changes could cause risks damaging the business and create a stressful situation for those involved. So when it comes time for a person to move on from your business, you’ll need either a succession plan or an exit plan in place. To find out which plan is best for either situation, we talked to a man who knows a thing or two about both – Advantage Business Partner and Advisor, Dominic Moran.
Here’s what you need to know.
Succession planning is for the business
Succession planning focuses on transferring leadership roles within the business. The aim is to ensure it continues to have value and prospers after the owner has left. Dominic thinks many business owners plan for their succession because they care deeply about their business:
“Owners, unless they are extremely tired and over it, will always be passionate about their business. Their desire for a successful transfer of leadership is often driven by their relationships with loyal staff. It’s about looking after all the stakeholders as well as ensuring a successful legacy for the business.”
A successful succession plan has far more substance than your average exit plan. More is at stake, so every possible outcome must be planned for and every detail must be covered. For that reason creating a succession plan can be difficult:
“The owner must put the needs of stakeholders and the business first. That requires a certain level of emotional maturity and humility. None of us lives forever but the business can outlive us all,” said Dominic.
Exit planning is for the individual
Exit planning is more of a person-centric process than succession planning. Its narrow focus simply looks at how an individual will transition out of the business, rather than how a business will survive after a key person is gone.
“The person who will exit has either had enough, needs to go for other reasons, or needs to be removed from the business. It may be their own choice or the choice of the manager or owners. If a business owner finds themselves wondering about how to best manage their exit, they need external advice,” said Dominic.
So in a situation where the owner eventually exits the business, exit planning is different. It should only be used when the business needs an individual removed or when a person chooses to leave the business at an individual level.
Which should you use – an exit plan or a succession plan?
Succession planning and exit planning aren’t incompatible, but they are different. To identify which is right for you and your business you need to think about what you’re trying to achieve.
If your priority is to remove an individual from your business, then a simple exit plan may be the right option. If you want to continue building the business’s value after you’re gone and ensure a successful transfer of leadership, developing a detailed succession plan might be your best option.
“Succession planning will involve, a lot of the time, allowing the owner to exit the business on their terms. Planning should begin on the day the person purchases the business. What do they want the business to achieve for them and their family? What’s it going to look like when it’s time for them to move on?” said Dominic.
Knowing the answer to all these questions and including them in a detailed succession plan helps give the organisation direction and ensures that its needs are met even after you leave.
Need help deciding what’s right for your business? Contact us today.
What can a succession plan achieve?
Succession plans should look different for every single business. For example, some owners may want to transition out of their business over time. In this situation, some of their staff may be given the chance to purchase shares from the owner over an agreed timeline to gradually assume ownership of the business.
During this transition period, staff will learn how to become business owners. They should demonstrate their ability to run the organisation. The owner may not entirely exit the business right away. They might cut down their hours to improve their lifestyle and perhaps start thinking about retirement or beginning a new venture.
Another option might be to hire a manager or increase management resources to free up their time. In this situation, where there are so many variables, a solid, detailed succession plan would be absolutely essential.
Need help with your business’ succession planning?
Leaving your business or transitioning staff doesn’t have to be difficult or stressful. Develop a detailed succession or exit plan, execute it well and your business could continue to thrive long after you’re gone.
If you need a hand putting your plan together, don’t be afraid to take advantage of our experience. Have a no obligations chat to one of our friendly, local Advisors today about how succession planning can work for you.
