Succession - What why, when and How ? by Craig West CEO & Founder - Succession Plus

1. BUSINESS manageMENT BUSINESS management
Exit options increases along with improvements in
Peak Performance Trusts in action – examples: performance of the business.
‘ABC Real Estate Pty Ltd’ The system is a win-win because a
Peak Performance Trust for shares-only investment buyer entering into the system over time
Listing
In the case of this client, the investment strategy for the Trust is simple – it will only benefits from the increased value of the
Venture capital ever purchase direct shares in the business, thereby giving participating employees business as performance improves. Key
Complexity and effort
an indirect ownership of the business’s equity. Its staff receive dividends and a employees now have a reason to think
Private equity
bonus reward based on the profit performance of the business. If the business and act like business owners.
was to ever be sold, the PPT would benefit from the capital sale, and indirectly, the For the many succession plans that
Trade sale
employees would receive part of that capital gain. Based on this simple strategy, fail due to the inability of potential
Sell to other shareholders the value of the PPT automatically replicates any change in the value of the shareholders (often younger and less
business, therefore employees directly benefit (or otherwise) from any change financially secure) to fund the purchase,
Sell database only
in value which is largely driven by profit performance and is something that the this plan represents a real alternative.
Family and friends employees can directly influence. The Peak Performance Trust offers a
practical solution as well as ensuring
Potential sale price/value ‘XYZ Real Estate Pty Ltd’ employees/purchasers have an incentive
This business has also had success with setting up a trust for key employees – in this to maximise their performance and that
company information and relationships,
case a large property management base has been substantially expanded as the funds of the business at the same time.
therefore having a negative impact on the
from the trust have been used to buy further property management books recently
overall value of the business.
sold by a competitor in a nearby country town. The purchase was topped up with Craig West, M.Tax Law, M. Bus (Acct/Fin), B.Bus
Many listed companies have employee
debt from Macquarie bank but the bulk of the funds came from the employee trust – (Mgmt), CPA, is a strategic accountant who has
share plans, option plans and other
employees are helping to fund the expansion of the business they now own a part of! built a specialised advisory practice focused
profit schemes designed to reward
Shareholders on small business owners. Craig has written
employees based on their contribution The advantages to all those involved salary sacrifice, or even drawing down three critically acclaimed
to profitability. Unfortunately, many of are obvious. Key staff now have an on their existing home loan. books educating SME’s
Succession
G
these don’t work in small businesses. equity stake (real ownership with The business owner has a on employee incentives,
Shares are often difficult to value, tangible value) in a business. They can predetermined sales strategy with succession planning and
Company
normally illiquid, and the legal and increase the stake over time based on identified buyers and an agreed asset protection and has
planning –
accounting complexities involved are cost an increase in their performance and valuation formula to calculate the selling recently been invited to
prohibitive for small business owners.
G also have the ability to make extra price. They are also able to maximise undertake a PhD in Business
We have had some success in several Listing
contributions from external sources, the sales price, because it constantly Succession Planning.
realPeak performance trust introducing a
estate businesses
a big issue!
custom designed vehicle which is both D Shareholders
Venture capital
Complexity and effort
an employee incentive plan in the form of
G
a profit share scheme and a mechanism
Private equity
for funding succession. In other words,
Trade sale
the Participating employees is happy to contribute
business owner
Succession planning is about taking a strategic Sell to other shareholders
additional profits generated by key
staff into a fund that is used by them to
approach to your business exit. Without it, the Sell database only
purchase equity in the business. As a
part of Family arrangement, key staff sign
the and friends
value in your business will retire when you do. agreements that deliver increased benefits
Story by Craig West.
Potential sale price/value
the longer they stay with the company.
The business owner has the comfort of
knowing that his key people are unlikely
to leave because they now own equity and
Business succession planning is revolves largely around taking a strategic share in the business profits.
a big issue for many Baby Boomers approach and taking the time required to
approaching retirement age. Why? The plan and manage the succession. In other
average age of a family business owner in words don’t wait until you reach 64 years Shareholders
NSW is now over 58 years old, and 68% and 9 months of age before you contact
of them plan to exit their business in less an advisor. By taking our strategic G
than 10 years time. approach to succession planning business
To use a real estate analogy, most owners find the process takes place over Company
business owners are like property investors a minimum of five years, and the most
who expect an income or rent return while successful plans over 10 or even 15 years.
they own and an increase in capital value There are many exit options open to G
when they sell. Put simply, they go into business owners – the trick is to work out
business to build their equity value and which one is most suitable for your business.
hopefully sell for a substantial gain. The But in many cases owners can’t see the
Peak performance trust
D Shareholders
reality sadly, is that most never get there! forest for the trees and miss the most
Our experience with many businesses obvious option: sell their business to
G
and large numbers of real estate agents existing key staff. Many business owners
Participating employees
has shown that a simple nine steps are susceptible to the risk of key staff
succession strategy solves the problem. It leaving, taking with them valuable clients,
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