It can be a daunting task to think of the potential hurdles your business may come across in the future, along with what will happen when you are no longer running the business. It is only natural that you want your business to have a life after you. Whether you dream about handing over the reins to your children, consider it a great personal achievement to pass it over to an employee who has been with you since day one, or even if you sell your business to a third party during it’s prime, putting a succession plan in place now safeguards everyone involved in the business, including if the unexpected occurs.
What is Succession Planning?
Succession planning means setting up your business for the future, with strategies in place for when you exit the business.
From an organizational level, this can include developing the skills of the people in your business to more than just the bread and butter of their daily work. This can mitigate the gap in knowledge within a senior role in the unfortunate event a position is vacated unexpectedly. On a larger scale however it develops individuals who can take over at the point that you exit the business.
From a personal perspective, it involves having the necessary foundations, policies and structures in place, to allow for a smooth transition when you exit the business.
Key Components of a Succession Plan
For a business owner, succession planning can vary greatly depending on your individual circumstances. However, there are a few key components that are common and essential for it to be successful:
Start Planning Ahead of Time
It’s important to note that succession planning should not begin at the point you decide to move on from your business. The issues around business succession planning are varied and complex. As such, the earlier this is considered, the greater emphasis you can put on ensuring that the plan suits your intentions and any issues can be resolved.
Structure Your Business for Your Future
One of the key benefits of planning ahead, is being able to review the way your business is structured. This plays an important role in both your personal and business’s future. Business structures are not only important for managing your tax requirements, but your personal assets also need to be taken into consideration.
It’s not uncommon for a business structure to be overlooked, especially upon its establishment. As part of BLG’s review process for new clients, we’ll often find their business structures are not set up in a way that provides the best outcome for their individual needs. Identifying ineffective structures early on can prevent avoidable consequences in the future.
Prepare Your Business for Life Without You
The years leading up to your exit are often crucial. Therefore, deciding what the plans are for your business when you do leave can make this period easier to manage. If you are passing your business onto family or an employee, it’s important those next in line have the complete range of skills and knowledge to keep the business running effectively, and for the transition to be as smooth as possible. Furthermore, if you plan on selling your business, it’s ideal to show a strong financial position for potential external purchasers to maximize your proceeds.
Be Aware of the Tax Implications
For many business owners, the sale or transition of their business will represent the most significant part of their retirement funding. Maximising your after tax proceeds will be a key goal, so it’s critical to get advice on your exit strategy, the tax implications themselves and how to best structure your retirement assets to minimise your tax liabilities.
Safeguard Your Assets
In the unfortunate event that you exit the business because you have passed away, it’s important to form a plan for what happens to your personal assets alongside your business succession plan. This is known as Estate Planning, and is usually established via a Will. It is always beneficial to consult a specialized Estate Planning lawyer to assist in preparing a Will for this purpose, and BLG can put you in touch with our network of professionals if required.
How to Get Started on Your Plan
Succession planning shouldn’t be a reactionary tool. It should be considered through all the phases of your business lifecycle, and requires you to be proactive in your planning.
Do you intend to hand the reins over to the next generation, to someone from within the business, or sell to a third party? To get you started with succession planning here are some of the questions to ask yourself:
- Who will run the business when you are no longer there?
- Does the next generation share your passion for the business? Do they have the skills to run the business?
- How can you maximise the ‘value’ of the business ready for sale?
- What are the tax and legal implications of selling?
- What will happen to the business upon an unexpected exit?
Establishing your succession plan can be a daunting task. The amount of information that needs to be considered can be quite overwhelming. As such, we recommend you speak to a trusted accountant or business adviser to guide you through this process. If you don’t have an adviser to help, you may decide our team at BLG can be of significant value to you. Have a talk with our team so you can find out if our approach suits your needs.
Wishing you and your business every success!