Mid-market businesses not ready for ‘silver tsunami’

A reluctance to plan for succession is putting the future of many middle market businesses at risk, as Australia prepares for the mass retirement or exit of as many as one million business leaders.  

The latest Pitcher Partners Business Radar Report found one in five business leaders either didn’t have a succession plan in place or didn’t know if one existed. A further 4% didn’t think they needed one.  

The issue is more pronounced when business size is taken into account.  

While more than two-thirds of businesses turning over more than $10m have a rough or formal plan, that falls to 45% of businesses with under $10m turnover. 

A remarkable 10% of businesses with sub $10m turnover believed they didn’t need a plan — a view shared by 11% of businesses with fewer than 100 employees. 

Overall just 28% of businesses reported their succession plan was fully developed and formalised. 

But despite this reluctance, the urgency of putting a plan in place is becoming clear.  

A surprisingly high percentage (27%) of businesses said they expect to change owners or senior leaders within the next 12 months. An even greater percentage of businesses turning over more than $10m expect a change soon – one third are anticipating a change within 12 months and a further third in this group think that change is coming within the next three years.  

“The results suggest some leaders may be underestimating the time and complexity involved in passing on the torch,” says Kylie Lamprecht, Partner, Pitcher Partners Brisbane. 

“Succession planning normally takes between five to 10 years as part of a larger strategic plan, so we would have expected a far higher percentage of these businesses to have one formalised. 

“While those businesses who expect to change leaders in the next three years are more likely to have started or finished the succession planning process than their peers, the sheer number of SME and mid-market owners preparing to retire in Australia should be acting as a wake-up call to prepare. 

“Even among businesses where change is imminent, 18% don’t think they need a succession plan.” 

It’s estimated that the owners of 40% of Australia’s businesses are within 10 years of retirement age, suggesting one million business owners could soon be looking to step away. 

“We aren’t yet seeing a rush to the exits but that could come, and business leaders really need to think about who will take up the reins, the choices they need to make about transferring ownership or seeking an internal or external candidate, or how they might prepare for sale,” Ms Lamprecht says.  

“These are not small conversations. They need to start early and they need to be guided by the right advice. 

“Middle market business leaders have the opportunity to protect their legacy through succession planning but ignoring the issue risks putting that legacy at risk.”