Succession planning in your business

Possibly the most important business decision a business owner will ever make, and almost certainly the toughest, revolves around succession planning.

Who will take over from you should something suddenly happen to you, and you are either no longer able to continue conducting business or have met with your demise? Should your business be sold?

When you make the bold move of owning and operating your own business, you need to painstakingly consider what should happen within and to your business should you no longer be around – and this planning is referred to as your business’s succession plan.

Potential consequences of not having a business succession plan

As if the business, emotional, legal, and technical issues weren’t thorny enough, consider this daunting fact:

Without a solid succession plan in place, there are numerous risks that could lead to the business failing. Some of these risks include:

• The business being lost to Estate taxes
• The family cannot agree on succession
• There may not be enough liquidity to support the business during the transition to another owner.
• Those who stand to inherit the business are ill- equipped to own and manage it.

As reluctant as many families may be to tackle the issue of succession, the health and longevity of a family business depends on careful succession planning – developing a robust plan and communicating the results to the right stakeholders, at the right time. Doing so will increase the likelihood of the business enduring beyond the leadership transition and leaving a lasting legacy for the family.

Here are three aspects that you should consider when you’re doing a business’s succession plan.

Raising up leadership:
One area of succession planning focusses on developing company employees into leaders who could potentially ensure that the day-to-day running, management and control of the business continues when you are no longer there to do so. These are the workers that have been identified as having the potential to take on leadership roles.

By implementing this process, these employees will be ready to step into their new leadership roles whenever it becomes necessary. For the company it will mean that at any given time, leaders who know the company will be available and ready to take the business forward and could even mean the difference between a business remaining operational or shutting down.

Succession ownership:

Another aspect of a successful succession plan that needs attention is the ultimate ownership of the business, what happens on the owner/partnership level in the event that someone needs to succeed the current owner. The type of succession plan adopted will depend on the ownership structure of the organisation.

Buy-and-sell agreements:

Buy-sell agreements are considered very effective for businesses with multiple owners. Many family businesses will find them ideal. The way a buy-sell agreement works is that it stipulates certain procedures that should be followed in the event of predetermined events.

Example:

If a partner unexpectedly dies, certain requirements of remaining owners/partners are initiated. This is usually a buyout of the deceased party’s share of the business by the remaining business owners, and this is often achieved by utilizing the proceeds of the Life Policy which has been taken out on the life of the deceased partner.

Creating certainty during uncertain times:

When an effective succession plan is in place, a company is able to bring stability to its operations even during times of turbulence. As a business owner, you can ensure the longevity of your business but also create certainty for your loved ones if it is a family-owned business.