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Business Plan – A road map or an atlas?

Having a business plan doesn't guarantee success but it does show that you have depth to your business idea.  The business name and structure (company, trust, sole trader or partnership) are important however the key item to clarify is what you propose your business will do or provide and who will be your customers.

Your motivation for starting the business is important as well. What will drive your business to be successful? What do you bring to the business to ensure its success?  A thorough strengths, weaknesses, opportunities and threats analysis is always good to include as it shows that you have an understanding of the marketplace you want to operate in.

Reviewing the opportunity you have identified and examining how it fits into the current market is critical. Who are your competitors and how do your customers currently deal with the problems you are trying to solve? Who will be the owners of your business? What staff will you require? How do you recruit staff and what will they cost? What infrastructure and equipment do you need? As you can see there are a lot of questions. It is better to have considered all of these aspects of your business while in the planning stage so that you have a clear path for when the business is operating.  If you need any assistance with planning for your business just let us know.

Succession Planning – Execute the plan

Once a plan has been devised between the stakeholders, there are many steps which must occur.  It is important that wills are updated to clearly stipulate the details of the plan.  
The plan should be shared with the accountants working with all involved family members so any necessary changes in the business' structure can be made and to be sure that all tax implications are understood and planned for throughout the process.  Finally, the family needs to work with their bank managers to come up with structures to transfer or restructure debt and assets according to the plan.  

This stage can be challenging for all involved.  It is hard to let go of control of a business which you have poured your heart and soul into for many years, even if it is to people you love.  Mistakes will happen as the next generation is learning the ropes.  However difficult it may be to see mistakes being made, it is important to allow the next generation the opportunity to make decisions as without experience, they will never learn what they need to successfully take over.  

Feel free to contact me if you would like to discuss your own business or success plan issues further.

Succession Planning - Create a plan

Once shared values have been established, a plan must be created.  It is important that this plan is clear and has specific timeframes attached to it in relation to the handover of key responsibilities and transfer of any assets and debt facilities.  In my experience, successful handover may take up to three years as it is important that the next generation learns the ins and outs of the business and has time to form strong working relationships with the family's accountant, bank manager, solicitor, and any employees.

Creating the plan can be challenging though, due to a range of issues.
 First, there are often differing ideas between generations about how to fairly divide assets and who should do what in terms of the decision-making and running of the business.
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I cannot underestimate the importance of this step, often overlooked in succession planning.  In order for any business partnership to work, all those involved must have shared values in relation to the running of the business.  For example, a partnership is unlikely to work out if one member is constantly wanting to take money out of the business to fund his/her lifestyle while the other is keen to reinvest profits into the business or focused on repaying debt so assets are unencumbered.  Likewise, partners will be on a collision course if one is committed to traditional approaches while another is pushing for innovation.  This is not to say that you can't have partners who think differently about particular aspects of the business.  What it means, though, is that all partners must discuss what they see as the future of the business, what they want to achieve, and how they plan to get there.

Succession Planning - Consider the options


Once you have completed the first two steps, understanding your business' current financial position and needs and carefully considering how family members might form a part of the business' future, it is important to evaluate all of the options.  There are always options.  What different groups of family members might be able to take over the business?  Would current employees be maintained in this structure?  Would new employees be needed?

One, although often not preferred, option is always to sell the business to a third party.  While that may not be the direction parties initially want to head, in some cases, it may be an option which needs to be considered.  There may be limited 'off farm' assets to share with family members not involved in the business or the business may not be large enough to viably support all siblings who want to be involved.

If they have not been involved previously, it is important at this point that potential business partners are brought into the discussion to consider pros and cons of various ways of moving forwards.

 

 


Succession Planning – Know your family

Strengths & Weaknesses
While family in businesses can work extremely well, just because you are related to someone doesn't mean that a productive business partnership can be forged overnight.  It is important to carefully evaluate what skills each family member brings to the business.  In some cases, the next generation may actually be able to bring new perspectives and insight into the business which can help it grow; take for example, a family member who has studied livestock genetics and can bring that knowledge back to the business to improve the herd or one who has studied business and may be able to competently take over the back office side of the business.
However, it is also important to identify areas where individual potential business partners may need to grow.  For example, just because a family member is amazing at managing livestock on the property, it doesn't mean that he or she will automatically be great at keeping the books up to date or other jobs that the first generation may currently be responsible for.  Skills may need to be shared and it is important to know going in what up-skilling may be required to get particularly people involved in particular roles within the business as this may affect timeframes around handover.
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Succession Planning – Know your business

Know your business' financial position
You should always conduct careful due diligence before you buy a business. You need to determine what the business is worth considering questions like:

What is the approximate value of physical assets (e.g., machinery, land, livestock)?
What level of debt is attached to it?
What kind of annual turnover has it had each year for the last five years?
What kind of income is projected for the next five years?
Are there any outstanding tax liabilities?
What threats and opportunities face the business?

These kinds of questions are relevant for the current business owner to consider before they enter into any discussions with potential business partners. You have to know thoroughly what you have before you can think about bringing family members or business partners in as they should be fully aware of the business's current financial position and prospects before becoming engaged in it, just like it would be if they bought a business from someone else. 

I always recommend that people talk to an accountant to get a clear picture of their current financial position, considering carefully issues like cashflow, equity, and debt.
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Succession Planning – What are the steps?

For those in agribusiness (and business in general), one of the greatest challenges is succession planning. At some point, each one of us will reach a stage where we want or need to retire or take a step back. However, if the right steps haven't been taken, handing the business over to the next generation can be disastrous for the business, the family, or both. Over the coming weeks, I'm going to share with you some of the things I have learned as I have helped families work through succession issues as an accountant and financial advisor. I always recommend to clients that they follow the following steps as they embark upon this stage, which I will unpack over the coming weeks:

  1. Know your business
  2. Know your family
  3. Consider the options
  4. Develop shared values and vision for the business
  5. Create a plan
  6. Execute the plan
Even if retirement may still be a bit further down the track, I encourage all business owners to think about what would happen to your business if because of health issues, you were unable to go to work tomorrow.

Every new year provides an opportunity to reflect on what you have achieved as well as what aspects of your life you may want to change or improve.  Generally in late December and early January many people set new year resolutions with varying success.  As it is now the new financial year we wanted to get people thinking about what are their new financial year resolutions.

Improving personal finances is a popular theme so we thought we could provide some ideas on how to make resolutions which are achievable.
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With the end of financial year only a few days away there is limited time left to make donations to deductible gift recipients.  The benefit for the recipient is that they receive funds to continue their good work. The benefit for you is that you may be able to claim the donation as a tax deduction which results in you having less income tax to pay for this financial year.