Start-ups urged to plan for business succession

Businesses without succession plans are almost twice as likely to fold or suffer a fire sale, according to a new report.

Hall & Wilcox partner Ed Paton says business owners who fail to plan for business succession risk losing “considerable value” from their companies, particularly those who expect to pass on their business to family members.

“Families will need to tackle the difficult issues, plan early, get good advice, communicate well within the family and act when the time is right for the business and the family,” he says.

Paton’s comments come in light of new findings from chartered accounting firm RSM Bird Cameron, which highlights small businesses owners’ attitudes towards business planning.

According to the company’s latest ThinkBig survey, around 80% of SMEs that conducted formal business planning experienced revenue growth in the last two years, compared with 60% that did not plan.

The survey reveals that only 38% of SME owners have a plan to exit their business, yet 60% of SME owners with exit plans expect to leave within the next four years.

The most likely methods for exiting the business were given as a sale to an outside investor, passing it to a family member or a trade sale.

For those owners who expect to pass on their business to a family member, only a quarter have a succession plan, although most are not planning to pass on their business within the next five years.

According to the survey, only one in three SME owners with an exit plan has completed a valuation for their business, and only 44% of SME owners with an exit plan are aware of tax concessions following a sale.

Andrew Graham, RSM Bird Cameron national head of business solutions, says SME owners planning to exit their business need to gain precise information about the value of their business and the tax concessions available to them.

According to Matthew Schlyder, managing partner of chartered accounting firm elliotts, businesses without succession plans in place are almost twice as likely to fold or suffer a fire sale.

Schlyder says business succession planning ensures that businesses survive in the event of a long-term illness or accident.

“It ensures that yourself and your family will receive the true value of your interest in the business, and allow an orderly transition of ownership to the remaining partners, family members or key employees,” he says.