Succession planning and development

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Succession planning and development

The successful transition of business ownership is a process requiring significant analysis and planning.
All business owners are naturally seeking to present their business and its performance in the best possible light to prospective new owners.
Business owners need to factor a realistic time-frame into the process in which to prepare the business for transition, regardless of whether the process is a sale of the business or a progressive transition of ownership to new owners.
Of key importance is the preparation of an accurate business performance history which illustrates clearly exactly what the existing business delivers from a financial and commercial basis.
New owners require detailed financial and market information on which to base a comprehensive ‘risk-neutral’ decision to proceed, particularly if the business is to be sold a going concern.

Transition to new owners (family or employees) from within the existing business requires a different approach to a business sale and will necessarily take place over a longer period. The drive for a business owner to consider ‘moving on’ may come at any stage during the life cycle of the business, however, many occasions are a result of the owner wishing to retire from the business they have spent a ‘lifetime’ working in and building for retirement.  It is this specific reason that requires the owner to consider a realistic time-frame for exiting the business and in doing so, creating a business of real asset and performance value.
A key factor in the successful ownership change in a business is the establishment of a proven history of profit delivery such that any new owners can are able to project forward the potential rewards for the risk they are about to incur.  In many instances, this important factor is over looked during the latter years of business trading, as mature businesses often produce cash withdrawal opportunities which inadvertently decrease reported profit performance (sometimes for good reasons at the time).

The generation of operating profit needs to be sustainable and commercially credible.

Transition to Family Members
There are several issues to be considered when the ownership of a business is to be ‘handed’ down to the next generation.  International statistics reveal the following regarding family business (private) dynamics versus non-family business (public) dynamics:

SUCCESS OR FAILURE OF FAMILY CONTROLLED OWNER MANAGED BUSINESSES

  • 75% of businesses are owner managed
  • Less than 30% succeed to the second generation
  • Less than 10% survive beyond the third as family businesses
    Data based on UK statistics [Dr. Barbara Murray]