Friday, 8 May 2008  
 
The number one reason that small and medium enterprises (SMEs) fail to pass to subsequent generations is due to a lack of a succession plan, said Gavin Dixon, CEO, Reckon Limited at the Adelaide Business Forum yesterday. 
 
“In Australia 90 per cent of SMEs are family owned, however family business owners do not always consider the best ways to transfer their business to the next generation. Only 30 per cent of family business’ pass to the second generation, and this is halved for the third generation,” said Mr Dixon. 
 
“The main reasons SMEs do not plan are based on existing owners preconceptions about their business, which are often wrong and misguided. The emotional and legal decisions that need to be made for family business succession planning can make the process highly complicated. 
 
“Often owners are scared about life after the business, or do not know how to value the business or exit from it. Sometimes owners believe that the business would not be able to operate effectively without them. However, these misconceptions can be avoided if a sound succession plan is adopted in the first few years of starting a business,” continued Mr Dixon. 
 
“Succession planning should start at the latest five years from the planned exit. In the first instance SMEs need to identify the key positions in the business and identify the leaders in the business, including recruiting, developing those leaders and employing a diverse range of people who have different attributes – don’t hire clones. 
 
“In order to be successful succession planning must also be part of a broader palette of business plans, including; exit, retirement and tax plans,” said Mr Dixon.  
 
“Developing the leadership of employees is important, and must take into consideration the individuals lifestyle aspirations and the commercial imperatives of the organisation. To do this businesses should provide leaders with lateral moves through the organisation into other areas of the business, including further training and development as needed,” added Mr Dixon.  
 
Each individual family member must also have a plan set out for them, which includes how they fit into the overall business’ needs.  
 
The key points to consider when considering a succession plan include:

• Start planning early – the latest start for a succession plan is five years from exit of the current owners
• Confront the reasons for not planning – ask yourself, what sort of life will I have after the business? What is my business worth? Do I have a retirement plan? Is the business my superannuation?
• Address associated planning needs – this includes the whole package, retirement, exit and tax plans
• Identifying the key positions in the business – these include managerial and technical roles, and not just the owner
• Identifying leaders in the business – the diversity of leaders in the business is important as is the development of leaders in the organisation.