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NEWS - PLANNING
Too few SMEs plan for succession
10/12/2004
Accounting firms plan to capitalise on small to medium-sized businesses as their baby boomer owners move into retirement over the coming decade.
Australian Bureau of Statistics research showed that 33per cent of small business owners were aged over 50, and that figure had increased at an annual rate of 3.7 per cent, DDI managing director Bruce Watt said. "Further, it is estimated that the impact of business exits on GDP is around 3 to 4 per cent each year."
Advisers face great demand for their services as succession planning involves a range of complex issues that few businesses can cope with alone.
The better-known challenges relate to income tax, capital gains tax, eligible termination payment, state duty, commercial debt forgiveness, debt-to-equity rules, reasonable benefit limit and tax issues associated with insurance policy ownership.
For some, the question of future means-tested pension eligibility is a consideration, as is estate planning.
Against all these considerations is the gap in SMEs' understanding of the emerging problem.
PricewaterhouseCoopers released the results of its business insights survey this week showing that two-thirds of mid-sized businesses have not yet identified a successor. Only 17 per cent of family businesses have documented succession planning, though 63 per cent acknowledge they will need to set one down in the future.
"They face erosion of their wealth unless they work harder on succession planning," PwC's mid-market leader, Allan Watson, said.
"Many family business owners will have to look beyond immediate family for a successor and trade sales as an exit," he said. "Thirty-eight per cent indicated they intend to sell the company to a successor, 17 per cent plan to gift their businesses while 26 per cent don't yet know how they would exit their business."
PwC's is the latest of several surveys released by accountants and other business advisers over the past year. Deloitte Growth Solutions' family poll in August found 52 per cent of respondents did not have a succession plan.
Asked if they planned to bring the next generation into the family business, half of the same group said they would, 22per cent said they would not and 29 per cent were unsure.
DDI, which provides succession management services, has produced six key planning tips for SME owners.
First, nurture a number of potential successors and be more systematic in selection. "If all potential leaders are assessed by the same criteria, an organisation is more likely to make a relevant, objective and fair judgement on the right successor," Dr Watt said.
Third, define the characteristics people need to succeed in future management positions.
Also, be creative with development options. DDI said SME owners must put potential successors through a range of learning situations, including job assignments, attending conferences, professional coaching and mentoring.
Fifth, ensure that development plans for high-potential staff are put into action. "The greatest pitfall of traditional succession management programs is a lack of follow-through on development plans," DDI said.
Finally, the owner is the most important person in ensuring the longevity and long-term success of a small to medium sized business.
Reproduced from the Australian Financial Review - 12 Oct 2004
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