There are 2.3 million small businesses in Australia, which in 2018-19 contributed almost A$418 billion – more than 32% – of Australia’s economic activity, according to government figures. Indeed, small to medium enterprises (SMEs) make up about 98% of all the businesses in Australia.

For small business owners, it’s a way of life. But one thing they often forget is the planning needed to retire or exit a business when their working life is over. It’s something SME owners should be thinking about much earlier on, and a facet where their accountant can help, says Craig West, founder and chief executive of succession planning specialist firm Succession Plus.

How to develop a succession plan with clients

West believes succession planning should be a regular agenda item at client meetings when accountants review a business’s financial performance. Proper succession planning means that business value is maximised, the owners are able to exit successfully, and the new owners are set up in a good, profitable business.

“As a company’s most trusted adviser, accountants are well placed to have this discussion with clients, complete a valuation report and agree the next steps to help improve that valuation and maximise business value,” West explains.

He outlines some simple questions accountants can ask to lead a client into a more strategic conversation about succession options.

• Do you know exactly what your business is worth and what drives that value?
• Do you have a succession or exit plan in mind (how, when, who, how much)?
• Is your business attractive to a buyer? Is it sale ready?

Another important question is whether there are family members or key people already in the business interested in running the company. If that’s the case, how would they fund a transition of ownership?

“I’m confident you’ll find most clients don’t have an answer to any of these questions let alone all of them,” says West.

The value of a Valuation Tool

Succession Plus’s proprietary Valuation Tool is designed to help accountants develop succession plans for clients. The tool produces a business valuation that includes both a financial analysis and an analysis of the non-financial, risk and operational areas within the business.

Using the tool, an accountant can quickly produce a reliable business valuation themselves, instead of outsourcing the task at a potentially substantial cost.

Accountants enter basic information such as an ANZSIC code, the number of full-time equivalent staff, floorspace of premises, and the reason for the evaluation.

“Once that’s done, we ask questions to assess the risks faced by the business, as well as adjusting accounts for expenses, which then calculates net operating profit after tax,” explains West.

The tool inputs macroeconomic factors as well as industry drivers and generates a risk score to help accountants plan the type of exit the business owner is looking for.

“Clients benefit from the involvement of professional advisers to help maximise the value of their business and to achieve a successful exit,” says West.

Picture: Craig West, Succession Plus.

“Clients benefit from the involvement of professional advisers to help maximise the value of their business and to achieve a successful exit.”

The platform is locally hosted by Microsoft Azure, so data never leaves the country, and it integrates with Xero, with more integrations to come. It also has an accounting dashboard that shows recent valuations and value changes.

Succession Plus’s algorithm then produces a valuation number and generates a Special Purpose Valuation Report, which is APES 225 Valuation Services compliant.

“As the baby-boomer generation approaches retirement, we’re seeing a huge interest from business owners wanting to understand the value of that business, and how they might be able to extract that value to fund retirement,” says West.

Find out more

Check out the Succession Plus Valuation Tool here or find out more at https://succession.plus