Kim Bigg:
Hi everyone and welcome to Show Me The Perks. This is episode number 16 and I’m your host, Kim Big. And today we’re diving into a critical topic for business owners, baby boomer business succession, which is a mouthful. With so many business owners approaching retirement these days, ensuring a smooth transition is a key to protecting their legacy, their wealth and the future success of their business.
Joining me today is Vince Tripodi, a Director at Perks with nearly 40 years of experience in accounting and business services. Vince is highly regarded for his expertise in asset protection, estate and succession planning, business mergers and acquisitions and restructuring. He’s worked closely with business owners to guide them through many complex transactions and transitions. So today we’ll unpack what does effective succession planning look like and how can business owners prepare.
Vince, welcome to the show. And before we get into it too much, other than the 40 years of experience or nearly 40 years of experience, tell us about your background and when you started at Perks and how long you’ve been working with Perks and anything else you can think of to enlighten the listeners about yourself and your journey.
Vince Tripodi:
Thanks, Kim. And thanks for the welcome. My background. My love for business really started at a young age. I was 18 when I borrowed a substantial amount of money to buy my father’s partner out in a fruit and veg business. And while I was working in the fruit and veg business, was actually studying to be an accountant at Adelaide University. Having qualified, I started working with a big four firm and then later moved into Perks, about August 1985.
Kim Bigg
So, while you’re at Uni, what happened to the fruit and veg shop?
Vince Tripodi
Doing both studying and working the late hours and the early mornings. But coming across to Perks, I learned pretty quickly that it was easier to make money out of accountancy than fruit and veg. And retail was starting to get pretty tough as it is right now.
Kim Bigg
This is in the mid-80s or late 80s or something like that?
Vince Tripodi
It’s probably, yeah, late 80s that we ended up selling all the shops. We had a few shops, dad and I in the end and bought into Perks and I’m still here. The rest is history. But as you said, I’ve been practicing as an accountant for over 30 years. My clients are predominantly SME, small to large. And really the industries, I don’t specialise as such, I’d consider myself a generalist. But most of my clients are predominantly in trade, construction, property, manufacturing, retail and hospitality.
Kim Bigg
Okay, thanks for that Vince. Just want to dive a little deeper into the succession planning now. Business succession and one of the key statistics that we see doing the rounds at the moment is that 76 % of business owners plan to exit within the next 10 years. That’s in Australia. So that’s a pretty significant statistic of people looking to transition their business or have business succession. So, it’s clearly a huge topic, particularly in Australia, I suspect as the baby boomers start to retire. But obviously succession isn’t just about retirement, it’s about ensuring the business continues on and protect the legacy of the person who’s created the business and built such a wonderful business. What are some of the biggest challenges that you see Vince, with business owners when they’re succession and they’re trying to plan for succession?
Vince Tripodi
Yeah, no, spot on, Kim.
The biggest risk and challenge is one, just the lack of having a formal succession plan. A lot of business owners just delay or just don’t, they ignore putting a plan together. They’re too busy running their businesses. They’re assuming their family will take over. They struggle with the emotional side of succession. And some of them actually lack the awareness of how much value can be added by actually having a succession plan. They don’t have a clear legal or operational structure for the transition.
And, you know, things like unexpected events, death or illness can create a massive instability that, you know, people are unaware of. So not having a succession plan can lead to, confusion, business interruption, conflicts. Letting go of control, you know, the emotional side of owning your own business. A lot of business owners are attached to their business, a lot of hard work and for owners, their identity is their business. So, letting go can be a struggle and not delegating and trusting others to run their businesses. Finding the right successor, not having a successor is going to be a challenge if you’re not prepared and not planning for it. Conflict between family members.
Kim Bigg:
A lot of these things could be ironed out with a bit better communication as well I mean you talk about you know the next generation and you might be going to talk through this more a bit later on but a lot of those items that you’re reading out I was just thinking myself communication would iron out a lot of those in terms of what family members are going to do and whether they want to carry on the business or who’s going to take over if there was a significant illness? it’s really talking to your accountant and your family to work out those things would assist with dealing with some of those challenges.
Vince Tripodi
Absolutely. Communication is part of process. You know, just having the plan in place doesn’t achieve the result. You’ve got to have the plan and then you’ve got to talk about the plan. And it’s communication, not only to all the key stakeholders. It’s not only to the successors, it’s your employees, your customers, your suppliers, financiers and you might be telling them certain you know not everything, there’s certain information that you withhold from some of the communication pieces, but yeah absolutely it’s a major part of the process. Keep communicating.
Kim Bigg:
A big question when should a business owner? Now arguably given what you just said there you should always have some sort of you know business continuity plan at any stage of the business but in terms of succession planning, if I asked you, “When is a good time for businesses to get themselves ready if they think it’s coming in the next 10 years?”
Vince Tripodi
It really depends on the complexity and the size and whether it’s a family business and whether your success is external or internal. But normally I’d be suggesting to most business owners anywhere between five and 10 years is a good starting point. You’ve really got to give yourself enough time to put everything in place to make sure that that transition, when you’re ready is smooth, and that we’re maximising the value of the business, that we have the right successors in place, that we’ve trained them, the communication piece that we spoke about, making sure that that’s all being handled well. Because what you’re trying to do is actually, you know, businesses are the biggest part of our clients’ wealth. And a lot of businesses take, a lot of owners, sorry, take their businesses as part of their retirement plan, as part of their superannuation.
Kim Bigg
How that fits into the wider wealth of the business owner is huge, isn’t it?
Vince Tripodi
Correct. And that’s why you’ve got to take the advice of your finance, you know, getting the financial planners involved. How does that dovetail? That’s the end part of your retirement, but how does that dovetail into your business?
Kim Bigg
It’s really getting everyone on the same page and saying, this is what I think I want to do. And this is what I think it’s worth. And this is who I think I’m going to transition it to. And the who, what, why’s of how to deal with succession. If everyone’s on the same page, you’re all working in lockstep. So yeah.
Vince Tripodi
Well, you do. You need to get your accountants, your lawyers, your financial planners all together, working together for the same plan to achieve that.
Kim Bigg
Now Vince, many business owners struggle to let go. What is your advice for those who are hesitant to step back and what are the risks of not planning for this?
Vince Tripodi
Well, Kim, it’s natural for business owners to feel hesitant about stepping back. For many businesses, it’s their identity. The business is their identity. They’ve poured their hearts and souls into building the business and the thought of handing it over and selling it can be emotionally difficult.
The advice that I would give just from my experience is, to really just think of succession as a growth or a way of maximising value and not retirement, not giving up. Succession planning is going to help with securing your legacy, I think. Helps maximise the value of your business and protects employees and customers and the business reputation.
The other pieces of advice I’d give is seek professional help and advice. Work with skilled, experienced advisors, lawyers, accountants, financial planners. They’re not emotionally invested. They’ll lead you through it. They’ll hold your hand through the process. It does make it a lot easier.
Address the emotional attachments. What you can do is maybe talk to other business owners that have successfully had a succession with their business or a sale. That might help. I think those three things are probably the key things that I would advise clients to think about if they’re finding it hard to let go.
Kim Bigg
It comes back to communication. Seek advice, talk to others who’ve been through it.
In terms of the, as a flow onto that, in terms of your experience with other clients, how are businesses generally approaching succession in terms of what you see? Or what common trends and how are people transitioning their leadership?
Vince Tripodi
Well, what I’m seeing is that clients are starting to, well, in my arena, my clients are starting to think about it a lot more, making it part of their overall business strategy and their business plans. Looking at not just with families, I think family succession is declining. I think what I’m seeing is a lot of the family members are now looking at alternative professionals and not wanting to take over family businesses. So, clients are now needing to look at ways of exiting and selling their businesses, be it a sale, 100 % sale externally, or key employees and bringing them into…
Kim Bigg:
So successioning their business from, you know, mum and dad down to the kids is less common than what it once was.
Vince Tripodi
That’s what I’m seeing in my client base. I’m seeing a lot more of the stage exiting with key employees and that is, you know, identifying key employees and successes that are crucial to the business. And then starting to mentor and train and communicate with those key employees and see if they’re committed and passionate about buying into the business. And then rather than the owners selling the businesses in one hit, maybe staging in a sale over a period of time. And it’s good for the buyer and the seller. It gives the buyer a bit more confidence that the old owners are still there working the business and the net.
Kim Bigg:
It potentially gives the seller a better price on the business as well if they’re sticking around to make sure the goodwill transitions.
And in terms, you mentioned that there’s less family-to-family transitions. For those families who are thinking about passing their business on to other families, what are some of the key considerations to try to make that as successful as possible? So, if mum and dad are hanging on to, you know, son and daughter or some combination of that, what are your strategies for managing family dynamics through succession planning?
Vince Tripodi
Okay. The word communication comes up again. I think having open, hard discussions and communicating what the goal is and what the succession is. Communicating, you know, who the successors are likely to be, what’s involved, how the process is going to work.
If it gets to the point where there is a little bit of conflict or it gets difficult, consider bringing in again, third party, neutral third-party people.
Kim Bigg
Like a mediator or something?
Vince Tripodi
A mediator to help smooth over the process. I think it’s really important.
Kim Bigg
And for those business owners who might be listening, who have a great business but don’t necessarily have a family or children or otherwise who want to take over the business. What’s your message for those people? What options are there out there for people who have a great business, don’t necessarily want to transition it to their family? Where do they go from there? What are their options look like?
Vince Tripodi
From a sale point of view?
Kim Bigg
From a succession or sale. Yeah, succession/sales. The same thing, isn’t it? If you’re not going to hand down to family, looking at other options.
Vince Tripodi
Well, the options that they’ve basically got is that they go out and do their external sale and the business is sold. And part of the succession plan in that process is getting the business prepared for sale, maximising value, making sure the systems are in place, key employees are locked in, such that we are going to maximise the value.
The other alternative apart from going out into the market and selling externally is looking internally. And looking at key employees and who might be interested. As I said, I’m seeing a lot more of that right now within my client base. The real benefits and the advantages of looking within your business is that a lot of businesses already have ready-made successors from a skills and an experience point of view. And it’s really just, you know, opening the doors and communicating with the employees to see who’s interested and who’s not. Once you’ve done that and you’ve worked out who the key players are, it’s really then putting a plan together to make that happen. And that’s the succession plan.
Kim Bigg
Yeah, absolutely. Succession doesn’t necessarily mean you pass it down to your family. Succession just means you’ve got a wonderful business, and you hand it over to family or otherwise in a quick way. So perhaps can you provide an example of the specifics of a client who you’ve worked with who has successfully transitioned to business and what made their approach work best for them?
Vince Tripodi
Obviously, without mentioning names, the business that I’m thinking of, it was a business in manufacturing. The business was owned by two people, two owners. One of the owners was looking at retiring. And what we did there was that, you know, prior to the whole thing happening, we did have legal shareholders agreements in place, which is absolutely crucial on how shareholders and owners should exit, because there were two non-related parties. And what we did was we had three key employees. So, this was an internal buyout. We had three key employees that were skilled, experienced, willing and passionate to buy in. So, what we did over the two or three period, we had a staged buyout, and this particular owner sold their 50 % of this business in three parcels. And how we approached that was the critical success factors for this buyout. One, we had the shareholders agreement in place. So, there was a process already documented as to what would happen, who would buy, who could buy.
We invested a lot of time and money in the business systems and worked such that the business wasn’t reliant on the owners.
We identified the key employees who would take over the business, had the discussions with these employees to confirm and get the buy-in. Then we had clear communication processes with the rest of the employees, the suppliers, the customers and all the key stakeholders. And the whole process went smoothly. There was no conflict. And we’ve now got a business with four or five different owners. But the succession happened really well.
Kim Bigg
Fantastic. And what role does financial planning play in ensuring business succession?
Vince Tripodi
Well, it’s important – business successions is not just identifying who’s going to take over. So, for instance, the tax implications – tax, capital gains tax, GST, potentially stamp duty in certain circumstances. Owners that are retiring or selling their businesses or moving their businesses over, need to understand what tax implications, how much you’re going to effectively lose because of tax.
Kim Bigg
What are you going to be left with at the end?
Vince Tripodi
Well, more importantly, you can actually put strategies in place to help minimise some of the tax and actually help create a bit of a bolster up your superannuation. Because sometimes, you can actually get the proceeds and roll them over in a super to help bump up your retirement funds.
Kim Bigg
Yeah, put it into a tax, concessionally tax environment so that it’s good for the long term.
Vince Tripodi
So having that in place is important.
Kim Bigg
Often the financial planner does a lot of that.
Vince Tripodi
Business valuations, same thing. Having a clear understanding of what the value of your business is, is really important. A lot of the owners, I feel, think that their businesses are worth probably way more than what they really are. When we sit down and actually do the numbers and work through it all, they might be a little bit surprised.
And then, you know, obviously the superannuation planning is really important too. You need to make sure that if the business is part of your retirement, are we able to retire?
Kim Bigg
So, looking ahead for advice for business owners, obviously there’s a lot to think about for people who are listening. For business owners who haven’t started succession planning, you know, listening to this podcast and think, gee, I really should start. What’s your message for them? What should they be thinking about now? If they want to start business succession and haven’t started yet.
Vince Tripodi
Okay, the first step I would say is obviously start planning now. Even if retirement feels years away, the best exits are planned early. It gives you more options, better value, time to mentor your successors, that’s family, staff or an external buyer. Just don’t wait for a health scare or burnout to force the issue. Planning is always best.
Kim Bigg
It’s probably a good segway onto the next question. You know, don’t wait for some sort of issue to happen. What are some of the common mistakes or the sort of horror stories if you like, or that you might have heard? What are the common mistakes business owners have made in the process? And what sort of things can you do to avoid them? Have a plan, I guess.
Vince Tripodi
Well, yeah, exactly. I think we’ve talked a bit about it.
Don’t wait too long to have the plan, get the plan going straight away. It can lead to rush. If you don’t have a plan, leading to rush decisions and missed opportunities. So, start your planning early.
Not having a plan that is supported by a binding agreement. So, if you’re going to have a plan, go see the solicitors, work with the advisors, document it, make sure it’s binding. So, there is no conflict and there’s no issues.
Kim Bigg
Get your accountant and lawyer together and document it.
Vince Tripodi
I’ve seen clients sell their businesses and then neglect taking into account the tax and the financial planning side of tax – the impact that tax can have on a business. People think they might walk away with more money than they really have. Tax is a big cost in selling businesses, the capital gains tax.
Not communicating the plan, I think, with key stakeholders is a real, big issue. Ignoring the family dynamics and again, not bringing the family into the communication piece and clearly explaining what the succession plan is and not really preparing or having a suitable successor. Yeah, you know, they get to D-Day and eventually and at that point they think, well, I can sell my business, but you might not have a buyer. You might not have a successor.
Kim Bigg
So, it comes back to starting early, doesn’t it? And getting well ahead of it and making sure you’ve got a plan from as long way out as you can really.
So, how can business owners get support? You talked a little bit about this already, but realistically it’s gone. See your accountant, go and see your lawyer, get them all in the same room together, get them sitting around together and talk through what your objectives are. Is it as simple as that?
Vince Tripodi
Well, I think the people that are involved are definitely the accountants and legal advisors. And the process that I sort of use with my clients is that the clients will come to the accountant or the financial planner to start the process. They understand the business, they understand the structure, they get a lot of the tax strategies and issues. So, I think starting off with your accountant and your financial planner is a good point and that’s where they help. They can help with the business valuations, the strategies for structure, simplifying structures if we need to, the insights of the business financials, its health and all that.
You then bring in the link once you’ve started that whole process and you work with the family to put together what they feel is the correct succession plan and suits them. That’s when you start to bring in the legal advisors. So, they’re the next advisors that I would bring in. They draft all the agreements. Documentation, make it binding, legal, all that sort of stuff. And you can use business valuers if we need independence in the valuation.
Kim Bigg
Cause you’re successioning it down to a family member. You don’t want other family members who are not part of the business getting concerned that it’s for a wrong value or a front, you know, more or less than they think it is.
Vince Tripodi
Correct. Well, one of the issues that I have is that if I’m dealing with a client and there’s families involved and they’re asking me to do the value, well, I’m not really independent. A lot of family members won’t rely on my advice, they want some independent business value is to come in and help with that. And then if there’s conflict, you bring in the mediators. You know, they’re the key people, advisors that are really critical to the succession plan.
Kim Bigg
Fantastic. Well, thank you very much, Vince. You’ve taken us on a bit of a journey there. You’ve obviously had a nearly 40-year journey in your accounting career and that’s given you a lot of experience to deal with succession with lot of your clients, very valued clients over a number of years, I’m sure.
So, it’s really nice to hear all these things. And I do hope that this becomes a, this is really valuable for any of those people who are listening. If you are a business owner and you’re thinking about the next phase of your business succession, now is the time to start thinking and planning. And if you need guidance, I’m sure Vince or myself or any of the other people at Perks would love to hear from you to use our expertise to help navigate your way through the transition and business succession smoothly.
Thanks to everyone for tuning in. Thank you to Vince again for coming along and we look forward to seeing you next time on Show Me The Perks.
Thanks everyone.
