Business Succession Planning

10 November 2016

Business owners face many challenges in running and developing a business. Richard Frogson, partner, provides some guidance on how you can 'future proof' your business with succession planning.

As a business owner, you will face many challenges in running and developing your business and although profitability will always remain a key focus, have you given thought to succession planning?

Whilst ongoing profits are obviously critical for you, the proceeds of a sale of the business can be life changing, particularly given some of the tax advantages that can be achieved. However, the issue of succession planning is often overlooked.

How can you prepare for effective succession planning?

Preparing your business for some form of succession can take a number years. The starting point is the fact that a healthy, tidy and profitable business is likely to result in better exit options for you. In the years preceding an exit you should, for example, give extra focus to making sure your business affairs are tidy and well documented, you comply with all the appropriate legislation, you maximise the available tax reliefs, and ideally, your business is able demonstrate year on year profitability growth.

So what are some of the exit options you can plan for?

You can transfer to a family member, however, this won't always be possible as there may not be anyone willing and able to take over the business. If there is, then you should be realistic about their ability to successfully take over your business and be professional about the price.

A management buy-out is another consideration which, with some time and effort, you are able to plan for. The planning starts with engaging management that have the drive and capability to one day take over. Following their continual development and once you feel they are ready, if obtaining bank funding to fund the buy-out, you will then need to convince the bank they are ready to take over your business.

A trade sale can be an excellent way of maximising the sale price, particularly if there are competing bidders. In addition to being able to demonstrate continued sound business management, developing aspects of the business which will be attractive to third parties, such as attracting key clients or creating valuable intellectual property rights, can be key.

Succession planning is an area where early planning can pay dividends. If you require help with this please do contact me.


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