Helping small business through the succession planning process

A succession plan can secure a business owner’s legacy and retirement. Here’s how to start the process for clients.

A small business succession plan in a binder

Three stages of succession planning

There’s a lot to do preparing a business for a new owner. Too many businesses do just one of them – offer their business for sale. A more strategic approach will lead to better outcomes. It can seem overwhelming to some business owners, so break it up into stages:

1. Forming an exit strategy

2. Getting the business ready for sale

3. Selling the business

What’s the role of the advisor?

Succession planning requires a wide range of skills. More than any single professional – or an organisation – can provide. As trusted advisors, however, accountants and bookkeepers can guide small business owners through the succession planning process.

1. Forming an exit strategy

Business owners don’t realise how long it takes to prepare and sell a business. You need to help them understand that it takes years, and explain why it needs to be a priority. Point out the risks of procrastinating – a more stressful exit, a lower price, and a messier handover. Agree on a plan and a schedule for all the steps to follow.

Before you get started:

  • Acknowledge emotions: The thought of leaving their business will stir powerful emotions for most owners. That could interfere with decision-making and communication. Help your client recognise when emotions are running high. Be patient as they work through those issues.
  • Explain the process: Selling a business is a once-in-a-lifetime event for most owners. They don’t know what’s coming and that probably makes them nervous. Tell them roughly how it works. Setting a schedule will really help alleviate anxiety.
  • Figure out who the most likely buyer is: A lot of businesses are sold to family or staff, and that may require special planning. For example, the purchaser may not have the cash to buy the business outright straight away. Your client will need to plan for a slower transition and staggered payments.

2. Getting the business ready for sale

The business needs to be at its best when it goes to market. Take care of all those things that the owner has been putting off. Staff should be fully trained, and business systems modernised. Consider forming an advisory board of experts to help get the business humming.

Some of the jobs to get done:

  • Get the financial data in order: Smart buyers will want to see at least two years of clean financial data. If your client has neglected their accounts, prioritise getting them fixed. Don’t let them claim any private expenditure as a business expense. Use online accounting software to keep records accurate and up to date so this doesn't become a rushed process.
  • Increase the value of the business: This one sounds obvious but very few business owners do it. Figure out what drives value in the business and work on making those things even better. Similarly, start fixing the things that would give a buyer pause. You may need external consultants to help set priorities. With foresight and planning, this can make quite a difference to the sale price.
  • Systematise everything you can: Review workflows in the business to make sure everything gets done as efficiently as possible. Look for opportunities to automate functions by using software and apps for things like accounts receivable, accounts payable, payroll, job costing, and expense management. Make sure all processes are clearly documented so a new owner can pick them up quickly.

3. Selling the business

Unless your practice has a business brokering focus, your client will work with a lot of external professionals at this stage. Bring brokers and lawyers into your network, so you can offer referrals to other professionals. Keep talking to your client throughout these final stages. Explain what’s still to come, so they know what to expect when:

  • working with a broker
  • getting legal advice on a contract
  • prospective buyers performing due diligence

Map it out and get started

Simply creating a succession plan can give your clients a lot of comfort. Even if the path is long, they’ll feel better knowing what the journey holds. And while some owners may be reluctant to talk about life after business, it never hurts to be prepared.


Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.

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