Every business owner exits eventually. The only variable is whether it happens on a date you chose, at a price you planned for, or on a Tuesday afternoon with no warning at all. Succession planning is the work of making the first scenario likely and the third survivable, and it is consistently the thing Perth owners agree is important and defer for another year.
What does succession planning actually cover?
Four questions. Who takes over — a family member, a member of the management team, a competitor, an external buyer? How is the value paid — cash at settlement, vendor finance, earn-out over several years? How is that payment funded if the trigger is death or disability rather than a negotiated sale? And what does each path cost in tax, for you and for whoever takes over? A plan that answers only the first question is a wish. A plan that answers all four is a document your family and your co-owners can act on.
What are the realistic exit options?
A trade sale to a competitor or a strategic buyer usually pays the highest price but requires the business to be genuinely transferable. A management buyout preserves continuity and culture, but the buyers rarely have the capital, so it typically involves vendor finance and a longer runway. A family transfer keeps the business in the family and raises the hardest questions about fairness between children who work in the business and those who do not. Winding down is a legitimate choice too, though it usually realises the least value. Each path suits a different business, and the honest assessment of which one applies to yours is the first real step.
How is the business valued?
Most small and medium businesses are valued on a multiple of normalised earnings — earnings adjusted for above or below market owner salaries, one-off costs, and any personal expenses running through the business. The multiple depends heavily on transferability. A business where the owner holds every client relationship, quotes every job and signs every cheque is worth substantially less than one with documented systems, a capable second tier and contracted recurring revenue. The uncomfortable implication is that the years before a sale are better spent making yourself unnecessary than making yourself busy.
What is a buy-sell agreement and do you need one?
If you have a business partner, yes. A buy-sell agreement is a binding contract that sets out what happens to a departing owner's interest on death, permanent disability, serious illness or exit: the trigger events, how the interest is valued, who must buy and on what terms. Without one, the surviving owners find themselves in business with a deceased partner's spouse, or facing a demand for a payout they cannot fund, and every term gets negotiated at the worst possible moment. With one, the outcome is already agreed and the process is mechanical.
How do you fund the payout?
Usually with life and TPD insurance held for each owner, sized to the value of their interest, so money is available immediately rather than being borrowed or raised by selling assets. The detail that matters is who owns the policies — the individual owners, the business, a trust, or a superannuation fund — because ownership determines the tax treatment of the proceeds and whether the payout reaches the right hands. Getting this structured before the policies are taken out is straightforward; restructuring afterwards, particularly once someone's health has changed, may not be possible at all.
What are the tax consequences of an exit?
Significant, and largely determined years in advance. A sale triggers capital gains tax, and whether you qualify for the small business CGT concessions depends on your structure, the asset sold and tests applied at the time of sale. A family transfer at undervalue still generally triggers CGT at market value. Passing shares through your will rather than selling has different consequences again, and superannuation death benefits are taxed differently depending on who receives them. This is the part of succession planning where the gap between a good plan and no plan is measured in hundreds of thousands of dollars.
What happens if you are incapacitated rather than deceased?
This is the scenario most plans ignore, and it is more common than death in working-age owners. Without a valid enduring power of attorney, nobody can sign contracts, authorise payments, deal with the bank, or make decisions on your behalf — and a business can fail in the weeks it takes to obtain a court appointment. Pair the succession plan with current powers of attorney, confirm that company constitutions and trust deeds allow for a replacement decision-maker, and make sure someone other than you knows where the critical records and access credentials are held.
When should you start?
The unplanned scenarios need cover now — insurance, a buy-sell agreement and powers of attorney are this quarter's work, not this decade's. The planned exit needs three to five years, because that is how long it takes to lift transferability, clean up the financials a buyer will scrutinise, resolve structural issues, and position for the tax concessions. Owners who start at three years out choose their buyer. Owners who start at three months out accept whatever is offered.
Succession planning is one of the few pieces of work that protects both the value you have built and the people who depend on it. The Metier Group advises Perth business owners on exit and succession through our business services, working alongside your solicitor and adviser. Contact us to start the conversation while you still have every option.