In 40 years of helping business owners with their business succession and achieve their long-term goals, we find there to be six dominant factors for business owners to acknowledge in their approach to business succession:
This encompasses the complex interplay between the business and family system.
And often there is no one that owners can confide in and discuss any problems in the business, succession planning, family, asset protection and how to manage life, family and wealth if they sell the business.
Importantly, this allows the business owner to look at their business from above (the forest or big picture), compared with being stuck in the business (the tress or small pixels).
Hoping to achieve your end goal is almost always, no substitute for planning the desired outcome - which requires examining all the issues, interdependencies, possibilities and arriving at an actionable plan with the required resources to achieve their end mission objective.
Which require specific skills and co-ordination across valuation, ownership models, asset protection, wealth strategy, intergenerational wealth planning, management succession, insurance and funding.
The best outcomes are achieved when you are in control and ultimate business succession is perhaps at least 5 years away. Even better, is to regularly refer back to your business and strategic plan – being on top of business hygiene, focus, quality systems, management structure and people & culture will always place you and your business in an enviable position to have the most optimal business succession outcome.
By clearly articulating one’s goal(s), a business owner is able to determine the gap between the goal and reality. Through our Business Owner Planning Process, we seek to help the business owner move their reality towards the goal and in turn, achieve success. It is a no ‘sacred-cows’ methodology that has been employed by our Partners for over 40 years to hundreds of business owners. An efficient process that produces an actionable and resourced critical path to achieve the business succession goal(s).
By undertaking Business Succession Planning we seek to assist business owners in addressing the key issues of:
Optimal growth solutions and funding avenues for the business and in due course, funding of the owners independent of the business
Indicative enterprise value and tax implications
Alternative future business ownership structures
Determine alternatives for existing management
Identify and manage possible conflict between the family & business systems
Consider and where necessary, professionalise management structure and conduct
Technical considerations around taxation, estate planning and future family & lifestyle funding
Mark was the managing director and largest shareholder of a services firm he helped developed over 40 years. There were five other shareholders. Mark held some important control rights as the Managing Director and a founding shareholder. In his late 50’s, Mark had started to see some undesirable trends in the businesses’ culture and conduct by key operatives and executive directors. Having been instrumental in growing the firm and having a large equity ownership he would like to sell at some stage, Mark recognised that he needed assistance for his business succession and getting the firm on a better ‘charted’ and operated basis. The two objectives were complimentary.
The firm had employed its first ever external CEO to operate the business so the directors could concentrate on clients and growing the business. The CEO proved to be unsuccessful, and highlighted that the shareholder directors did not have a strategic plan and were operating a ‘fly-swat’ management style – that is, they saw an issue(s) or problem, and just swatted it away without broader analysis and strategic consideration. This form of management is invariably uncoordinated, unaccountable, lacks consensus and broader understanding, making it often (very) costly financially and damaging to the enterprise.
It was at that stage Mark approached Cameron Harrison for strategic planning (Mark had previously engaged us a few years earlier for his personal investment management). Achieving strategic consensus amongst the directors was vital. Of the eight critical issues identified in the strategic plan conducted with the directors, one was the need to consider and formulate a succession planning model for new and departing equity directors.
There were five other shareholders who had been introduced to equity over the preceding 20-year period. The shareholder agreement was archaic and initially established by the prior managing director who had since left. It was acknowledged that the firm had a good talent pool of senior executives who with the appropriate executive development and accompanying equity development scheme could broaden and deepen the ownership of the firm with appropriate entry and succession mechanisms.
Through our consensus planning process, a clearly defined strategic mission was agreed. The original CEO mis-step was corrected, and a refined management and governance structure was put in place with improved financial controls and reporting. In this instance, the business succession component was not addressed until the following year. This acknowledged that there were substantial structure and conduct priorities to address first. The process was conducted with our consensus planning methodology and the plan’s assumptions were regularly reviewed and actions altered to reflect adjustment to real outcomes.
The Business Succession component put in place the foundations for a new equity structure, shareholder agreement, equity introduction and succession. Cameron Harrison managed and coordinated the process with the service firm’s accountants, who had been newly appointed, alongside a leading law firm who we have used extensively for documentation and tax rollover advice elements. A new equity ownership scheme was put in place, and an additional six new executive shareholders were introduced. Most importantly, the process was first defined by clearly agreed principles and outcomes. This ensured the necessary consensus to address difficult elements along the way.
Four years after the introduction of the new equity ownership and succession model, Mark decided to stepdown as Managing Director and place his equity into the valuation and equity succession scheme that had been established. This was well contemplated by the new equity structure, and by this time, there were some 18 shareholders. Through a pre-agreed valuation model, Mark’s equity was acquired by the remaining 17 shareholders. Today, the firm’s shareholder numbers have grown further, and the business has continued to expand successfully.
For Mark, he achieved his personal business succession goals in a properly planned manner, which in this instance, saw management acquire his equity on optimal after-tax financial terms. This was integrated into his pre-existing wealth strategy and due to the change in wealth structure (from business value to portfolio value), necessary adjustments were made to his asset protection & intergenerational wealth transfer plan.
Cameron Harrison utilises its FaBrs™ methodology for business owner strategy and succession. In this instance, we drew on our expertise across the highlighted factors which significantly assisted Mark in achieving his business succession goals, as well as the future success of the firm he had been instrumental in developing for over 40 years.
Cameron Harrison have been advising business owners and their families on asset allocation and intergenerational wealth management for over 50 years. We have demonstrated over a long period our ability to manage investments through both the good times and bad by keeping the client at the centre of our business.
To discuss our approach to investment management or any other inquiries, please contact us on +613 9655 5000 or contact our experts here.
Paul Ashworth, Managing Partner
Anne-Marie Tassoni, Partner
David Clark, Partner
Tristan Bowman, Partner