Steve Jobs has been good for Apple, no doubt. When you look at Apple you see a highly successful, creative business, generating shareholder returns far superior to its major competitors. Yet, despite being a massive enterprise the share price gets the wobbles every time its CEO takes medical leave. For sure systems are in place to reduce any individual’s’ effect on the valuation of the business but it seems Apple has been unable to resolve the issue completely at least as Wall Street is concerned. Being “one in a billion” may become Apple and Steve Jobs’ curse.
It is not surprising therefore that the CFO of Apple has taken a key role in this transition period. There will be much more of this to come across privately held enterprises in Australia too over the next few years when you consider the average age of family business owners today is 56 years. Yet most have no real succession plan.
In privately held companies the role of the CFO is often extended far beyond treasury and finance matters. With Australia’s two million family businesses being are valued at up to $1.5 trillion, it is inevitable that the CFO will become pivotal in any exit strategy and succession planning.
The GFC has also changed the landscape. The GFC has shifted priorities of business owners. Pre GFC there was an emphasis on business sale as an exit strategy. It was a reflection of the crazy prices being paid. Today, few owners are looking at selling as an exit option.
The MGI Australian Family and Private Business Survey 2010, undertaken by RMIT University and supported by MGI, an international accounting firm specialising in advice to family and privately owned businesses found that, apart from fewer owners considering selling their operation if approached, a higher percentage of owners said they did not have an enough funds for retirement due to the reduced investment values.
It is clear that a vast number of business owners are not prepared for their succession. Most business owners go into business not only to earn an income, but, importantly, to build the value of the business and to sell at a profit. For many, the value locked-up within their business is their second largest asset behind the family home, and in some cases it is even more valuable than the family home.
Rather than something back of mind, succession planning indeed, amplifies the ability of a business owner to extract the maximum amount of value from the business upon exit. The problem is many business owners have an overly optimistic view of an exit. This where guidance from the CFO can be invaluable.
Whereas the business owner may have had a grand vision; most will have a vague notion of a trade sale, a management buy out or even an IPO as a succession or exit strategy. Few ever achieve any of these. For most, the exit plan is analogous to the making of a last will and testament. The risks of staying too long are high as evidenced by diminution of value over the duration of the GFC which reduced available funds for an adequate generational buy out.
There is more fundamental issue at stake: succession planning is a tool for the CFO. In effect, a succession plan can trigger implementation and refining of systems and processes to the point that the business can run just as well without the owner as it did with them at the helm. Often relegated to the wish list, the task of documenting activity undertaken in a business under the guidance of the CFO, should mean business as usual under all circumstances, thus avoiding the Steve Jobs factor.
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