After pouring years of your life into building a profitable business, it’s natural that you’ll want to pass it on to someone who will take equal care of it, whether that’s a member of your family or a buyer. That’s why succession planning is so important.
In the context of your business, succession planning is the process that ensures a smooth transition in ownership from you to someone else, so that a new owner can continue to pursue your company’s goals.
Why is succession planning important?
A succession plan can help to leave the business without negative repercussions, secure your legacy at the company, ensure a seamless transition to new management and reassure employees and stakeholders.
What are your succession planning options?
The three most common options are:
1. Keeping the business in your family
You might want to pass on your business to a family member, such as an adult child. While this option has many benefits, the relationships and emotions involved can make objectivity difficult, so it can help to involve an external adviser who can remain impartial.
2. Selling the business
It can be difficult to find a buyer with the skill and expertise to run your business, and the inclination to do so. But once you find them, this option can be profitable and strategically successful.
3. Management buyout (MBO)
Another option is for your company’s managers to become owners by raising the finances together. This can be the best way to ensure continuity of your business’s progress towards its goals, as the same team continue to operate it and service customers.
How can you ensure successful succession planning?
A successful succession plan takes time and dedication. It will be unique to your business. But all good plans involve the following steps:
Goal setting
Consider your personal goals and the goals of the business. You may have shareholders or other stakeholders whose goals you must consider.
Timeline planning
You need to establish the date you’re working towards, which may be definite, for example, your retirement at a specific age or indefinite, your eventual death.
Communication
Keep your employees, customers and clients informed. When people feel ‘out of the loop’, they get uneasy and you may lose them.
Seeking professional advice
You’ll likely only create a succession plan once. So, to maximise your chances of success, speak to a professional adviser who’s helped other businesses create theirs. An expert’s perspective provides insights you may not be aware of and keeps your plans on track.
Succession planning checklist
For a business, working without a succession plan can invite disruption, uncertainty and conflict, and may endanger your future competitiveness.
Do you know the answers to these ten questions?
1. Have you defined your personal goals and a vision for the transfer of ownership and management of the company?
2. Do you have an identified successor in place?
3. If applicable, have you resolved the family issues that often accompany leadership and ownership decisions?
4. Does your plan include a strategy to reduce estate taxes?
5. Will there be sufficient liquidity to avoid the forced sale of the business?
6. If succession will one day require the transfer of assets, have you executed a ‘buy-sell’ agreement that details the process ahead of time?
7. Is there a detailed contingency plan in case you die or become unable to continue working sooner than anticipated?
8. Have you identified and considered alternative corporate structures or stock-transfer techniques that might help the company achieve its succession goals?
9. Have you determined whether you or anyone else will depend upon the business to meet retirement cash flow needs?
10. Have you recently had the business valued and analysed in the same way potential buyers and competitors would?