Succession planning is a process for identifying and developing new leaders who can replace old leaders when they leave, retire or die from your business. Succession planning increases the availability of experienced and
capable employees or family members that are prepared to assume these roles as they become
available. It is part of the risk management of any business however there are a number of complexities that may occur if the business belongs to a family.
Having a family business succession plan will help you prepare for the day that you retire or move on to other projects or interests. If you get it right then things will go smoothly if you get it wrong there are all sorts of problems, hassles that could undo all your hard work.
There are a number of things to consider when developing a family business succession plan.
Why do I need a Succession Plan for my Family Business
There are Many reasons why you may exit your family business. For example.
- Planned Retirement
- Health Reasons
- New Interests or Opportuities
- Tragic circumstances such as Death or Divorce
If want to continue to draw income from the family business without daily involvement so you want someone who has the capability to take over and low you to have less involvement while still maintaining some income from your business.
What are some strategies for Succession Planning
- Minimise your Tax
- Employee Buy Out Scheme
- Provide a smooth Transition for your team
- Secure your future income
- Sell to your competitors suppliers or trade buyers
- Management Buy Out
Do you have Professionals helping you with your Succession Planning ?
Succession planning for Family Business is a complex process and it needs to be set up by a team of professionals. There are a number of things to consider.
- Finances who pays out existing loans.
- Do you want to continue earning an income from the business if so how with that work.
- What are the Tax implications and how do you make the most of them.
- If an employee is to take over the business how will they fund their share how will you set up an agreement
We suggest setting up an Advisory Board with the right people who have skills and expertise in Succession Planning. If already have some of these people on your current Advisory Board.
Choose the Most Capable person to continue running the business
You need to make an informed decision about who will take over the reigns of your business when you step down.
Sometimes the oldest person in the family is the first choice, however it may not always the best choice. Your Daughter may show more passion and more capability at managing the business whereas one of your sons may be very good from the technical point of view so it is important to choose careful and have a discussion with your family early on so that all members are on board. Have it clearly documented in your family business succession plan who is responsible for what part of your business.
Give them the support they need in preparation to taking over the business. If you develop your successor over a long period they should be in a good position to take over and enable a smooth transition for the whole team.
It could be a long term loyal employee who you groom to take over your family business. You should start preparing someone for the role from the beginning of your business over the years so that you have someone capable of taking over.
Review your Succession Plan on a regular basis.
Things change over time, peoples interests and circumstances change so it is important to have regular reviews of your business plan and revisit the family business succession plan on a regular basis. We suggest that you include this in your regular business plan review.
Will you leave a Legacy or will you leave a Headache
You most likely went into business to make life better for you and your family and when it is time to retire you want it to be a smooth transition. With a fully thought out Succession Plan you will be prepared to step down and there will be no surprises.
Having a plan in place will give you peace of mind when the time comes to step down or if other circumstances happen and you have to step down from the leadership role in your family business you won’t be caught out.
We have all heard of case studies where family business have made a fortune and then the next generation has lost that fortune. This can be prevented with the right plan.
Succession Planning is just as important as all the other components of your business plan
In conclusion, succession planning is a key component in planning your business strategy, it needs to be given special consideration. Failing to plan for succession can cause many problems that would interfere with a smooth transition into stepping down from your leadership role.
Without a plan you may face a number of problems.
- If not be able to retain an income from your business into your retirement.
- If not be able to prepare you business to take opportunity of the best sale price when it comes time to sell.
- You may even end up in a legal battle with other members of your family.
- If not get a fair price for all the years of effort you have put into your business.
Remember the old saying failing to plan is planning to fail.
If you need any help or have any questions please leave comments below.
My next article will include the Seven 7 Steps to Succession Planning.