Many SMEs overlook the importance of succession planning to their company’s long-term operational and financial performance. As trusted advisors, how can accountants address this issue and ensure their clients’ longevity?
With much of Australia’s baby-boomer generation looking to retire in the next 10 years, SMEs need to start proactively identifying rising talent to assume full leadership responsibilities in the future.
Without a succession plan in place, companies run the risk of not having the knowledge and skills needed to drive their businesses forward.
The good news is that accountants can help their clients create a succession plan that will ensure the continued viability of not only their company’s finances, but their people as well. So what are the main areas where accounting firms can help with succession plans?
Accountants can help owners identify the current value of their business in the initial stages of developing a succession plan. This will assist companies in preparing for a transition or possible sale.
Working with other stakeholders, including lawyers and financial advisors, accountants can produce a due diligence report, which will give details on the financial health of the company.
Once a planned succession date has been set, accountants can detail any retirement payments required. When laying out the terms of a payout agreement, talk with your client about their retirement goals so you can determine whether a one-off payment or regular payments would suit them.
Before an owner decides to exit or have less involvement in their business, accountants should advise on financial factors, including how an owner’s departure could affect key business relationships with suppliers and major customers.
Once a business has been valued, accountants can help their clients create a timelineof what needs to be done in the years leading up to a transition or sale.
A lead time of at least five to 10 years is ideal in order to prepare future management to take over the business.
In this time, clients can identify whether they would like to keep the business in the family or perhaps sell it to other partners or shareholders. Other options include a trade sale, selling to private equity and venture capital players, or listing the business on the ASX.
Accountants can outsource HR specialists to help their clients with developing succession strategies. This will identify the key roles that will prove vital when meeting the company’s future objectives.
Clients can then assess whether their current talents are able to move into those roles or if they need to recruit people with specific skill sets in the coming years.
To avoid key staff leaving before or after a transition or sale, accountants may suggest to their clients to ‘lock in’ those employees with profit-share plans.
Negotiating a transition or sale
If a client has identified family members to be its company successors, accountants can begin to establish governance processes for involving family in business decision-making. Introducing a method for dispute resolution may also be needed.
However, if a client is looking to sell their business to an outsider, accountants can help by looking for opportunities for the business to form relationships with other companies that may have a similar strategic vision.
Look at companies within your own portfolio of clients and make introductions where appropriate. If a client decides to sell its business to a company with similar values and objectives, this will make for a smoother transition for the business and the people working within it.
Additionally, encourage your clients to scout potential buyers among their competitors, customers, employees and other industry professionals.
Accountants should qualify any potential buyers on a client’s shortlist and have bidders sign a confidentiality agreement before they are provided with any financial records.
Negotiating and nurturing the succession plans of your clients will ensure they continue to develop and thrive alongside your firm.