Stepping back from your business
Selling or closing are not the only options if you choose to leave your business. Whether you run a business as a sole trader, partnership or company, a succession plan looks at who’ll take over once you’re gone.
You’ve built up your business and now you’re ready to move on — maybe into another venture or into retirement.
You may want to pass management or ownership of the business to your children or a trusted business partner. Or you might want to retain some ownership but take a back seat on day-to-day management. Whatever you choose, there’s a lot to consider.
Succession planning isn’t a quick or cheap process
And when it involves family it can get complicated, so it pays to take advice and plan well ahead.
Why you need a plan
If you’ve worked for years to build up your business, handing the reins to someone else may be furthest from your mind. Few owners have formal exit plans — if any — because:
- it’s too early to think about it
- there’s no time to create one
- they don’t know where to start.
There are serious risks if you don’t plan who’ll succeed you. Small businesses without succession plans often fail when their owners retire, get sick or die.
Family businesses
A solid succession plan is essential if you want your family business to carry on successfully after you leave it. The plan needs to identify which family members will take over or offer another management option.
This can be a tricky process, depending on your family relationships. Get your family involved as early as you can and seek professional advice.
Use this free template to help you write a great plan for launching your new business.
A business plan helps you set goals for your business, and plan how you’re going to reach them. When you’re starting out it’s a good idea to do a full and thorough business plan.
Quick-focus planning to make sure you work on the right things for your growing business - every day.
It’s important to take time to reflect on your business strategies and plan. It doesn’t have to be a difficult or time-consuming task.
Taking a back seat
You’ve decided to step back from your business, but you want to stay connected to it. There are several ways to do this:
- Retain a share. You can keep a stake or shareholding in your business to give you an income in retirement or while you start another venture. Get advice from a lawyer and accountant if this will involve giving or selling shares in your business.
- Retain a role. You may decide you can step back from the business but still offer valuable advice to your successor, especially if they lack your experience and knowledge. Decide what role to take, eg director or consultant, and talk to your successor about how it will work.
Getting advice
It's a good idea to get advice for every stage of succession planning. How much advice you need depends on:
- where you are with your planning
- your business structure — companies and partnerships may need more advice than sole trader businesses
- the size of your business, eg your turnover
- how much your assets — including your intellectual property — are worth.
If you have a board of directors, it can help guide the planning process. You may also want to hire an advisor who specialises in succession planning.
Key steps
Succession planning isn’t an exact science, but there are steps you should take:
- Talk to family. It’s important to ask relevant family members about succession, even those who don’t work in the business. Everyone may have different ideas of what’s best for them and the business.
- Set goals. Decide on what you want to happen to your business, what your role will be — if you want one — who should run it and when you want to leave, eg when you turn 65 or the business is worth $1 million.
- Know your assets. Identify all your assets and liabilities. This helps to value your business so you can calculate shares or sale price.
- Have a timeframe. Getting a sound plan in place can take a few years. The earlier you start, the easier it will be to leave when you want.
- Get advice. You’ll need professional advice at various stages of your planning and exit. Think ahead and approach them well in advance.
- Document your plan. Make sure key decisions are written down and accessible to family and advisors.
- Review your plan. Do this regularly, eg at least yearly, to account for changes to your business and circumstances.
