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Succession planning a big issue


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

Published in: Business
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Succession planning a big issue

  1. 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’sSuccession 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 hasplanning – 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 businessesa 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 ownerSuccession planning is about taking a strategic Sell to other shareholders additional profits generated by key staff into a fund that is used by them toapproach 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 friendsvalue in your business will retire when you do. agreements that deliver increased benefitsStory 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 andBusiness 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 toapproaching retirement age. Why? The plan and manage the succession. In otheraverage age of a family business owner in words don’t wait until you reach 64 years ShareholdersNSW is now over 58 years old, and 68% and 9 months of age before you contactof them plan to exit their business in less an advisor. By taking our strategic Gthan 10 years time. approach to succession planning business To use a real estate analogy, most owners find the process takes place over Companybusiness owners are like property investors a minimum of five years, and the mostwho 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 Gwhen they sell. Put simply, they go into business owners – the trick is to work outbusiness 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 Shareholdersreality 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 Gand large numbers of real estate agents existing key staff. Many business owners Participating employeeshas shown that a simple nine steps are susceptible to the risk of key staffsuccession strategy solves the problem. It leaving, taking with them valuable clients,46 | List more! Sell more! Be more efficient! It’s in sold• | 47