Success with succession

You can’t take it with you. Business really does mirror life. An ageing population of business owners and managers are, or soon will be, confronting the reality of business and personal mortality. They need to plan accordingly.

In the broader commercial fraternity the signs are omnipotent. The average tenure of chief executives among the top 100 of Australia’s some 1.9 million trading entities is reportedly 4.6 years. Similar business lifecycles now typically expire within seven years. Accordingly, success with succession has become an essential for corporate longevity.

It might be argued that certain businesses and industry sectors simply do not fit these moulds – but they do. It is simply a matter of scale and time.

Worldwide, the telltale signs were largely ignored by medical general practitioners. They valued their independence and felt confident in their ability to sell their practices upon retirement. Sadly, it turned out that goodwill in medicine rarely exists, and where it does, little value is assigned to it by other general practitioners. Consequently, all too often the scenario arose that on one Friday night when a GP turned off the surgery lights and closed the door, a lifetime of service and value expired. But why?

The reason is that all these GPs focused on their profession and their practice, all the while ignoring the business.

In Australia, consolidators, usually business oriented medical practitioners, have bought numerous general practice surgeries, retained the individual or individuals on three to five-year contracts and developed the business. In Western Australia, for example, 47 percent of general practitioners are today salaried employees.

It is a timely and invaluable lesson for all business owners and managers, who must plan for success and a seamless organisation. Transition in ownership and management should be planned, gradual and disciplined. This maximises business value, client service and staff morale.

The rationalisation of the Australian and New Zealand economies during the past decade has been instrumental in affecting significant changes. The shortage of career-oriented professionals, tradespeople and general staff in both countries is exacerbated by the tendency of so-called Generation X not to commit to long-term career paths. Generation X finds little or no appeal in the demands of long hours, forsaken weekends and extended trading hours.

Moreover, few Generation Xers can readily muster sufficient capital to invest in a business. Extensive debt is certainly not an attractive proposition to a demographic that lives and works for Friday.

Succession planning demands discipline, a focus on the future and a nurturing attitude. It adds appeal to the recruitment, induction and development process. The opportunity to establish and to progressively build equity in a business fosters better applicants, a more stable workforce, enhanced commitment to the business, increased productivity and perhaps, in parallel, improved business value. However, it is a five to seven-year cycle.

Effective succession planning cannot be undertaken in isolation. Ideally it should involve an accountant, financial planner, financier (banker, etc), suppliers, family and staff members. Input should also be sought from professional associations and business brokers.

There is no ‘perfect’ model. The one common thread is lack of time. It needs to begin now.

Succession planning also needs to be deemed a capital item, as intrinsically it is about protection of capital in the business, including people and the continuity and growth of these assets.

However, the issue of succession is not limited to business owners and managers. Staff members move on, business is becoming more complex, and technology is increasingly demanding ongoing skills development. Career path planning and delegation are two key related issues. Employees typically respond positively to the prospect of ‘growth’ within a business. Delegation of authority and responsibility for specific tasks and departments is a motivating experience. Scheduled, periodic skills and interpersonal relationship training fosters and facilitates job growth and rotation.

Still, just how many businesses allocate a minimum of 2.5 percent of turnover in budget to staff development? The natural, immediate and longer-term returns are people with the skills, training, experience and confidence to ‘step into the shoes’ of the predecessor. The progressive payback period is around three years.

The issue of success in succession planning puts a different perspective on the phrase, ‘nothing succeeds like success’.

or email Franchise Council of Australia is a not for profit membership organisation that is the peak body representing the franchising sector in Australia.