Helping small business through the succession planning process
Accountant & Bookkeeper Guides
4 min read
A good succession plan can secure a business owner’s legacy, and their retirement. Why not help your clients come up with one? It could be one of the most important and enduring things you do for them. Here’s how to get the process started.
Sue Pak - New Zealand Head of Accounting, Xero
Three stages of succession planning
A group of New Zealand business advisors, policy makers and brokers recently identified all the steps required to properly prepare a business for a new owner. There were 18 in all. Too many businesses do just one of them – offer their business for sale.
The working group’s 18 recommended steps fit into three broad stages:
Forming an exit strategy
Getting the business ready for sale
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.
You can get a full 18-step guide to succession planning in our report Success through succession planning, but here are some basics to get you started.
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:
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 puchaser 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.