Succession will affect every business at some point. It is inevitable and yet so many business owners don't have adequate plans in place.
Early succession planning allows the greatest chance for your business continuing by:
- being financially independent at your desired retirement age,
- being able to pass your clients on to a successor,
- preparing for catastrophes, and
- realising maximum value in all scenarios.
If managed properly, this is your opportunity to create wealth in your business.
The benefits of succession planning:
- Choose when you wish to retire.
- Minimise disruptions for your clients.
- Maintain continuity of employment for staff.
- Maintain suppliers' credit terms.
- Retain the confidence of banks and financiers.
- Manage lease and loan liabilities properly.
- Reduce the pain of a forced retirement.
- Avoid conflict with business partners.
- Maximise the value of your business.
- Ensure adequate funds for yourself and your family.
- Increase the number and quality of potential successors.
Succession is a management issue that should be addressed 5-10 years in advance of implementation. Plan for a number of possible scenarios, to enable the departure of an owner or partner, whether through forced and unexpected events or by retirement. Succession planning is important at the beginning of a business as life is unpredictable!
Often the emotional aspects form the initial barriers to a succession plan, including personal relationships, family concerns issues of relinquishing control, and beliefs that the owner will keep working beyond retirement. Succession planning can be seen as a threat to security and status.
It can be difficult for partners to suggest to a colleague that it's time to start thinking about retiring, but transparent and open discussions always result in fairer solutions. If a plan is established well in advance then emotional issues can be reduced.
A formal succession plan generally consists of two important parts:
A. Legal Agreements
Legal agreements such as a shareholder agreement and buy and sell agreements manage the business dealings and transition of business interests come succession time.
Succession Planning: factors to consider:
- What, when and how is the plan going to be implemented?
- What is the selection process for finding a successor?
- What development training does the successor require?
- Who will mentor and coach the successor going forwards?
B. Business Continuity Plan
The business continuity plan should tackle management and ownership plans to ensure your business remains a success and continues to service your clients' needs.
Key employees need to understand the plan, so they're less likely to exit when most needed.
Insurance can also be an important factor. In the event of sudden death or disablement, the remaining owners may buy the estate out. Insurance can help fund the purchase upon a forced exit, avoiding the need for the remaining partners to use their own capital. You need to consider the type of insurance and level of cover you require, also who holds the responsibility for paying the premiums, how to deal with shortfalls and surpluses, policy ownership issues and how you'll treat the termination of the policy.
At Brentnalls SA, we have the knowledge and experience to help you plan and execute your succession plan. Our objective is to see you and your business thrive now and into the future.
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The information provided in this information sheet does not constitute advice. The information is of a general nature only and does not take into account your individual situation. It should not be used, relied upon, or treated as a substitute for specific professional advice. We recommend that you contact Brentnalls SA before making any decision to discuss your particular requirements or circumstances.