If you were to believe the hit TV series Succession, you might expect succession planning to be a process fraught with tension, backstabbing and family feuds. Thankfully, it doesn’t have to be that dramatic. Succession planning for business owners shouldn’t be overlooked, and we’ll explain why here.
In reality, succession planning is a great way to prepare your business for the future, ensure long-term stability, and enable a tax-efficient handover of the business when the time comes.
What is succession planning?
Succession planning is the process of mapping out the transition of ownership and management roles, should you decide to step away from your business. Whilst you may not have immediate plans to hand over the reins, it’s still important to be prepared for whatever the future holds.
Whilst a succession plan may need to be enacted suddenly, in most cases, it can be implemented over a number of years. By gradually handing over responsibility to family or valued employees, you can ensure they’re a suitable fit, provide mentoring, and most importantly, maintain the stability of your business as you step away.
Why is succession planning important?
Succession planning is important because it ensures business continuity during a change of ownership, whether that’s planned and gradual or sudden and unexpected.
Without trying to be morbid, it’s really important for every business to have a succession plan. No one can predict the future and, sadly, circumstances can change quickly. Without a succession plan in place, businesses can be derailed by a sudden and unexpected loss of a senior manager or director, leading to a paralysed business, or an awkward change of control which may have a detrimental impact on an existing team. Waiting months or years for a court order to gain access to a bank account can lead to obvious issues.
A succession plan, combined with proper estate planning, can help ensure a smooth transition of ownership should your circumstances change, protecting your family, co-shareholders, and employees. If you need assistance with estate planning, including business lasting powers of attorney, our Wills, Trusts & Probate team have a wealth of experience working with business owners.
Fortunately, most succession plans aren’t implemented under these kinds of circumstances. However, that makes them no less important. The intertwined nature of personal and professional relationships, particularly within family businesses, can make succession tricky to navigate. When left unaddressed, disputes over who ownership and management roles should go to have the potential to disrupt your business and cause conflict, both at home and at work.
As well as Business LPAs prepared by our private client team, our company and commercial lawyers can prepare important documents, such as properly drafted shareholder agreements and bespoke articles of association, easing the transition process when the time comes. For a relatively modest sum now, thousands of pounds can be saved in avoiding disputes further down the line. It’s all very well to say that a co-director will buy you out on your death, for example, but how will they pay for it? It’s fine to say shares will pass to someone in a will, but what if the shareholders’ agreement and articles do not allow for such a hand over? These are the sorts of questions we can answer, and stressful situations we can help you avoid.
The process of succession planning allows you to consult each of the relevant parties before determining the best route forward for your business. Having a clear plan in place reduces the chance of conflict and ensures everyone is clear on their role within the business.
Preparing for the future is much easier once you’ve decided what the structure of your business will be. You can ensure your team has the training and qualifications they need to fulfil their role and mentor them as they take on more responsibility. We regularly work with companies’ accountants to help put employee share option schemes in place to enable owner managers to start incentivising management teams to be more invested in the growth of the company for which they work for and so on. This of course can help achieve a better sale value when the time for retirement comes.
Properly implementing a succession plan in good time is the best way to minimise disruption to your business as you hand over the reins, ensuring it continues to thrive in the hands of your preferred successors. Whether it’s disaster planning, or estate planning, it’s never too early to get a proper plan in place.