As a business owner, it’s easy to become so focused on building your business that you neglect to protect its survival should the unexpected occur.
Imagine if you had to leave the business unexpectedly. Or if another vital member of your team leaves without notice. Where would that leave you and your business? What would you need to do to safeguard your business in this circumstance?
That’s where succession planning comes in.
What is business succession planning?
Succession planning is simply a strategy for the handover of a business from one owner to another in particular circumstances, such as the planned or unplanned departure of a principal from the business.
Why do I need a business succession plan?
A comprehensive plan helps to ensure the business’s survival and can minimise disputes between owners and families.
What does a family succession plan involve?
For some family-based businesses, the right option might be to pass on the business ownership or its management to the next generation of family members. A succession plan involves a range of decisions around the business to overlay any complex family dynamics or individual relationships to address any issues that may affect resources or business success. A succession plan ensures effective preparation and communication to overcome or prevent any potential challenges.
What should a business succession plan include?
This plan includes a documented buy/sell agreement to cover issues such as:
- Establishing who should retain ownership and control of the business, by providing an orderly transition with the departing owner (or their estate) selling their interest in the business to the remaining owner(s).
- Determining the ‘trigger’ events which may result in the departure of a principal.
- Ensuring that the departing owner (or estate) receives an agreed and predetermined value for their interest in the business.
- Providing the remaining owner(s) with funding options to purchase the departing owners interest in the business.
However, there’s no one solution…
Every business is different, so there is no one formula you can follow to determine the right option for you, your family, and your business. A good, qualified, and experienced business advisor and accountant will be able to guide you in the steps to take that will help you protect your business should the unexpected occur.
When should you start implementing a succession plan?
The earlier the better! Collaborating and communicating about your succession plan with those involved allows you all to make informed decisions about the business. Starting early also allows time for everyone to come to agreement on the proposed actions.
You also need to ensure that the next generation of owners or management is capable and confident to take over the business. This may involve providing additional training, internal communication, and leadership support to get them ready for their new role in the business.
Speak to your local accountant or business advisor about your business succession plan needs early to ensure the future success of your business. Reviewing your finances, insurances, and business structures for successful transition from one owner or leadership to another is vital early for long-term success.
