One of the most potentially disruptive events in any small business, particularly family businesses, is the changes that occur with the departure or retirement of the senior manager, owner or founder.
This page concentrates primarily on succession and transition in small businesses. However, the need to plan for succession and transition in larger businesses is also important. Whilst some of the issues may be different, the basic processes will be similar.
What is succession or transition planning?
For most small businesses this is about how the business owner will leave or transfer management and ownership, whilst maximising their personal financial security and minimising the impact on the business performance.
While addressing this issue is often referred to as succession planning, it is probably better described as transition planning. It has two essential aspects:
-
It involves more than just the person succeeding to the senior management position. Other people will make a transition to new areas of responsibility at the same time. This indicates the need to focus on the broader implications of the changes occurring to the management of the business.
-
Planning is an essential element. It should start well in advance of the actual transition taking place. It is not unusual for the transition planning process to occur over several years to achieve the best outcome.
Transition planning can address operational, legal and financial matters and may involve:
- family transfers - transferring ownership or management responsibilities to other family members
- retaining ownership while employing an external manager
- selling the business - on the open market
- closing or winding up the business.
Why develop a transition or succession plan?
It is often difficult for managers, particularly the founders of family businesses, to move on and leave the management of their business to someone else.
Developing a transition or succession plan can significantly reduce the impact if it is done well in advance of the actual transition and focuses on the transition the former manager is about to make to a new phase of life.
Developing a transition plan
Development of a transition plan should begin by considering the owner's objectives and their personal and family situations, the objectives of the business and those of the family. It needs to look at the business as a whole, how it will grow and prosper during and following the transition and how it will impact on the family.
Some key considerations of transition planning:
- It is never too early to start the transition planning process.
- Planning must include everyone who will be affected by the process.
- The final plan should be the result of consultation with all key personnel.
- Planning should seek to find the best possible person for the senior management position. This may involved an appointment from outside the business or family.
- Good communications is a key to successful transition planning.
- Regularly review the plan once it has been developed.
Who can help to prepare a transition plan?
You may need to consult a range of professionals, including your accountant or tax adviser, a legal adviser, business adviser, human resources adviser and bank manager.
Get assistance developing your transition plan from the business adviser at your local Business Enterprise Centre or Regional Development Australia office.
More information
Other websites
Succession planning information - Business Victoria
Succession planning template and guide - business.gov.au