Business Succession PlanningYou're thinking about retirement or leaving your business in a few years. Here are some tips for successful business succession. Business Succession is not just about exiting your business, it's also about the circumstances in which you do this. Death, bankruptcy, illness, partnership or shareholder disputes could be the reason for an early exit however so too could an early retirement.
So, a business exit and succession plan is an essential part of business management. Business owners need to prepare their business for sale and undertake a 'defensive due diligence' whether or not they are planning on selling in the short term.
Potential purchases are far more willing to pay higher prices for companies which have well documented systems, policies and procedures, and registered intellectual property. They are also far more receptive to companies where substantial IT infrastructure upgrades, or equipment and services updates, are not required.
Purchasers will also pay more (or will be less likely to seek discounts on the price of the business) where owners and employees are formally engaged with the business by way of employment agreements.
It is vitally important that company registers, structures and documentation are up to date and accessible. You should also ensure that partnership and shareholder agreements, buy/ sell agreements and trust documents are put in place. These will not only add value to your business but they also ensure you can exit your business in a tax effective manner. They can also help protect you in an unplanned exit from your business.
If yours is a family business, you need to be aware of this with your succession plan. Interpersonal and emotional issues are often ignored in succession plans, to the detriment of the plan itself. Technically brilliant succession plans are of no use if personal issues are not properly addressed. So take extra care with these issues and coordinate your succession plan with estate planning and other specialist advice where necessary to ensure your plan achieves what you want it to achieve.
Also, ensure your succession plan is detailed enough. Succession goals are often not reached because they are poorly stated. Often agreements do not specifically address business exit issues or only do so in a simplistic manner. Trust deeds may not provide for the passing of control of the trust to the right person, Wills do not reflect business succession plans (a spouse or executor may inadvertently be able to control or have (unwanted) input into the operation of the business). There is also often an absence of documentation dealing with the funding of an owner's exit from the business, leaving their business partners struggling to afford to be able to pay for their interest in the business.
And finally - here are five tips for successful business succession:
- Have a good pro-active advisory team. One who will help you to achieve your goals.
- Meet regularly with this advisory team to review your current legal and financial position.
- Identify your succession goals. Are your objectives to protect your wealth, provide continuity and ongoing success of the business, provide for future generations, or a combination of all?
- Combine your business succession planning with your estate planning. Appropriate insurances in this respect are vital and should form an appropriate part of your succession planning.
- Review and update your succession plan and goals. What may have suited you and the company a year or five ago, may not stand today.
