What is Succession Planning?

You’ll hear the term succession planning bandied around without necessarily knowing what it truly means. Anyone who owns a business should be across succession planning, as it refers to the process and strategy for how you would ultimately like to pass on your business. It also provides an important framework to help address the many issues you might encounter over the lifespan of a business.

Here’s what you need to know about succession planning.

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Every business (particularly family businesses) should have a succession plan.

Having a succession plan determines the future of your business when significant life events take place – it’s essential to have in place. There are many benefits to those who plan effectively for an orderly transition of ownership including survival and growth of business assets, preservation of family relationships and of course, tax minimisation.

Thinking about and developing a business succession plan ultimately gives you the ability to maintain control over the future of your business. What would you like your business to look like in the future? What are your expectations in the event your business is sold?

There may be many triggers for implementing a succession plan ranging from planned events such as retirement, or unexpected circumstances such as illness or death. Whilst most people don’t plan for these things to happen, we all know life throws curveballs and the more prepared you are for any given circumstance, the better your business will handle both the expected and unexpected.

Without a plan, consider what the outcomes might be for the business after a significant event occurs. The full value of the business may be diminished or even lost entirely if it’s forced to close. Not having a plan might invite disruption, uncertainty and conflict into your business and the lives of your family and even your employees.

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Some of the risks to the continuity of business operations might include:

• Suitable leadership replacement
• Retention of key staff
• Who is equipped to handle day to day operations (such as customer/client enquiries, management of existing contracts etc)
• Are there sufficient funds available to pay employees and suppliers to keep the doors open? (ie cash reserves, life insurance?)

By developing a succession plan you can address the things that could happen, enabling the business to carry on and allowing sufficient time to deal with the many aspects of what comes next.

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Here’s what to consider when developing a meaningful business succession plan:

• Effective transfer of wealth
• Transition to retirement
• What family legacy you wish to create
• Appropriate structuring
• Estate planning issues
• Tax and legal implications

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Key questions to ask yourself when succession planning:

Are you thinking of retiring? Identify who will replace you.

Do you wish to continue owning? Identify who will run the business for you.

Might you like to sell? Who is your likely buyer? In house personnel or external parties?

When would you like to exit? Do you understand the current value of your business?

These are some of the important elements in considering an exit strategy, whether due to unforeseen circumstances or a planned event.

How do I begin succession planning?

The first step is to start the conversation – identify answers to some of the above questions. Our team has many years of collective experience in helping family groups through this process. We understand the challenges that come hand in hand with successful succession planning and can guide you through the process from start to finish.

You can find more information about our services here, or get in touch with any further questions here.