Succession Planning - An Overview

Mon, 11 February 2008 AEST

Email | Print

Medici Capital Staff Writers

Succession planning should form part of every business plan: how will ownership of the business change hands when the time comes.

We will produce a number of articles to provide some information about succession planning, but as an introduction, consider the following fundamental requirements of a succession plan:

The Business Valuation - How Much Is the Business Worth?
The valuation process and method should be tailored to suit the objectives and timing of the succession. A fixed term short-time frame succession may warrant a fixed price. A longer transition may require regular market reviews and valuations.

The valuation should be fair and reasonable recognising the relationship between the parties.


Finance - Buying or Selling The Business
Finance can be used to protect the partners through Buy/Sell Agreements and/or Put/Call Options.

Funding should be on-Balance Sheet to ensure tax effective use of capital and recognition of the cost of capital in the business. Equally, the finance arrangements can make further equity transfers easier.

The arrangements should not create undue financial stress for the new partner.


Wise
While a suitable prospective partner and successor may be identified through existing staff, a thoughtful and professionally executed process for selecting the new owners should be considered. You should proceed with caution in selecting candidates for succession.

Set clear objectives/criteria for the assessment of the characteristics of prospective owners. You should also consider the achievement of agreed milestones before being invited in as partners/owners.


Other Considerations
Other items to consider include:

• Alternative wealth creation and management vehicles;
• Suitable protection in the event of inability to work with the new partner and/or triggers for unwinding

Stay tuned for more information about succession planning in the coming weeks. In the meantime, check www.medici.com.au for more information about succession planning.