Succession planning for businesses
As a business launches and then grows, the focus of its owner(s) often may be concentrated on the day-to-day management of operations.
The demands of running a business may understandably, therefore, distract an owner from examining and planning their long-term goals and ambitions. But there are many reasons to take time to focus on these important aspects of owning a business.
Many business owners fail to see the value in forming a clear and ongoing succession plan or exit strategy. However, succession planning should form part of any good business plan and be re-examined at least every five years. It should identify key roles in the business and the employees or other persons best suited to fill those roles. It should also highlight the crucial skills needed at each level of the organisation to ensure maximum performance and identify how those skills are to be acquired and/or retained. Most importantly, it should deal with the “what ifs”.
If your business does not have a succession plan in place, potentially you are exposing yourself and your business to unnecessary risks:
- If the business is a partnership and one partner retires or dies, that could lead to the enforced dissolution of the partnership business if nothing has been agreed to the contrary. Having a written partnership agreement in place can prevent this scenario.
- Circumstances may be appropriate for key employees to undertake a management buy-out. If, however appropriate planning has not been undertaken, it may not be possible to raise the funds required.
- Rather than leaving shares to family members in your Will, you may consider bringing them in as shareholders at an earlier stage (having taken appropriate tax planning advice). The company’s governing documents can protect both minority and majority shareholders.
- There are several share schemes and share option schemes (including growth shares and EMI option schemes) which can be used both to incentivise key employees and assist in succession planning. Some carry tax-advantaged status.
For more information and advice on any aspect of succession planning, please contact Adam Aisthorpe on 01472 262629, email firstname.lastname@example.org or visit wilkinchapman.co.uk