Succession – are we missing the point of the economic challenge?

I think we’re missing the point.  I’ve just attended, and presented, at yet another seminar on “Succession Planning” where, as usual, almost everyone talked about:  maximising the value of the business for sale;  tax and asset structures;  insurance;  financing the deal and buy/sell agreements.

Don’t get me wrong – they were all good sessions – professional, well researched and technically profound.  But they all missed what seems to me to be the “other” main point:  that there are currently so many private businesses at risk of folding – because there aren’t nearly enough buyers to satisfy all the sellers – that we are facing an economic tsunami of business closures, with a resulting massive loss of jobs and commercial capacity, UNLESS we start to do very much more about it than we have done, so far.

Where are all the buyers?  (a lament)

Exactly as predicted over 10 years ago:  when the huge demographic bulge of baby boomers started to sell their businesses, en masse, to fund their retirements, an awful lot of them are being very disappointed when they discover there’s nobody out there wanting to buy them, other than at bargain basement, or break up prices, that bear no relation to hoped for values.

So, if we don’t have family members who can, or who want to take over the business (Option A), and we don’t want to be gobbled up by a large corporate or consolidating multi-national (Option B), and we definitely don’t want to break up the business for asset value (Option C), what’s “Option D”?

Option D = “Devolution”

The short answer is:  “D” stands for devolution:  an internal sale to management and/or staff.  If this is a possibility, it’s conceivable that some of the family will remain an active or silent partner in the business after the sale.

If we’re pursuing Option D, we’re talking about succession as continuity of the business, rather than about succession as exit and termination of the business.

I’ve lost count of the family businesses I’ve worked with where the staff reckon that if they could send the family off on a permanent cruise they could improve profitability enough to pay them far more in dividends than they’ve earned in years, and give themselves a good pay rise at the same time.  BUT rarely do these staffers have the resources or the self-confidence to take the risk of buying the business, nor do they have the first idea of how to go about it. After all, if they’ve been employees for their entire working lives this is not territory they’re familiar with.

Option D is at once far simpler, and far more complicated, than a straight sale to an external 3rd party:

  • It’s simpler in that there are few unknown quantities about the business: due diligence on operations is almost redundant, although the quality and state of the records is always a potential issue, as are the business’s liabilities and internal / external funding arrangements.
  • It’s more complicated in that the financing of the sale is usually a matter of negotiation over vendor terms; long term partnering / profit sharing deals;  nature and value of continuing family involvement;  release of guarantees and other financial support provided by the family in control, and so on.

The business often also requires a serious organisational restructuring, as leadership and management are transitioned across to non-family executives.  New systems usually spread authority, responsibility and accountability over many more heads than before.

Continuity (Succession) Planning

 “A lack of planning on your part does not justify a crisis on my part”

The earlier we start to plan and implement, the smoother and more successful the transition is likely to be.  As we see increasing numbers of 70 and 80 year olds realise that they’re running out of time to make things happen as they’d wish, so we see more and more crisis situations that require pretty robust advice and interventions to save the family and the business from perdition.

A new Strategic Plan needs to be developed for the business that shows what the purchasers are getting themselves into.  This may be radically new stuff for some or all of them and training, coaching and facilitation are likely to play far more important roles, at the outset, than conventional accounting, legal or financial advice.

After everyone has put some shape into what they’re selling or buying, and they all have a clearer idea of how they want to make it all work, they’re ready to instruct lawyers and accountants to handle their technical needs.

The employees may need help to negotiate terms with the owners, especially if there’s an earn-out arrangement, vendor terms or residual family employment (at any level).  If the owners are struggling to let go emotionally, there’s a whole extra world of pain to work through.

Structures need to be established, or changed, to accommodate the new regime.  Typically this requires setting up a proper Board and Executive Management Team, along with new job descriptions and performance expectations.  Education and training in governance, leadership and management are often required, along with continuing coaching and mentoring for the new executives, at least until they’re confident in their own abilities.

Finance needs to be organised, whether it’s coming from internal or external sources, or a combination of the two.  Again, if this is provided as part of the process, everybody’s job should become much easier.   

Who’s the Client?

This question always troubles lawyers and accountants, who invariably want an identifiable individual, or legal entity to protect, and to bill.

It’s usually best to engage a facilitator / negotiator / family business adviser (without portfolio) to manage the process, as they’re able to interface with and support all relevant parties through every stage of the process:  as everybody’s friend and as nobody’s advocate.


Every succession process needs a handover event – one that recognises and celebrates the success of the outgoing owners and provides a point in time when the handover becomes complete, absolute and public.  More than anything else, like a burial or a birth, this defining point provides everyone with clarity about what’s what, from here on.


As our economy slows and we lose jobs, capacity and optimism, family business owners, as responsible employers of around 50% of the Australian workforce, need to think about and work on business continuity much harder.  Meanwhile their staff, trade associations, unions and government should get more involved in supporting business continuity wherever there’s a viable business worth continuing.

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