1. Clarify your objectives
The first step in business succession planning is working out what you are trying to achieve for your business and yourself. Questions to consider include whether there is a natural successor, whether that person is willing to succeed you and whether you want to continue to be involved in the business. The answers to these questions will significantly influence the content of your business succession plan.
2. Understand your options
The next step is to examine the various options that may be open to you. In our experience, when business owners have a willing and able successor, transferring the business to this person is often the preferred option. However, if there is no successor, other options will need to be considered. Depending on the circumstances, these might include a management buyout or bringing in a junior partner or partners with a view to training them up to succeed you. Alternatively, you might decide to sell the business.
3. Get the timing right
Regardless of whether you intend to pass the business on to the next generation, or transfer control by some other means, timing will be critical. You will need to allow sufficient time to prepare your successor and optimise the business so that you can achieve the best possible value when you are ready to exit.
4. Prepare to transfer control
There are many elements to take into account here from identifying and developing the future leader(s) to enhancing business value by streamlining processes, controlling costs and maximising revenue. Often, obtaining a valuation of the business well in advance of the planned transfer will identify opportunities to enhance value.
5. Achieve an orderly transition
To achieve an orderly transition it is essential to have the ‘buy in’ of all of your stakeholders, not just your successor. Good communication is vital. All too often, when this aspect of succession planning is ignored, it leads to misunderstandings and conflict which are not just time consuming and stressful to manage, but can also undermine business value.
6. Remember to manage risk
Identifying and managing risk is a key element of good governance. When it comes to succession planning, good plans can fall apart if the potential for unexpected events to intervene have not been considered and planned for in advance. Examples of events that can affect succession include the unexpected loss of a successor due to illness, accident or death. Developing, and regularly reviewing, your succession plan should be an essential element of your risk management.
7. Obtain professional advice
It is advisable to seek professional tax and legal advice well in advance of the transfer of your business so as to achieve a smooth transition and avoid mistakes that could create problems and/or lead to unanticipated tax bills for you or your successor.
8. Personal Finances
Last, but not least, remember to prioritise your personal financial security and that of your family before transferring control of your business. Failing to take this into consideration from the outset when succession planning could cost you and your family dearly.
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