Succession planning may feel unnecessarily pre-emptive, but it is crucial to have an exit strategy in place to be prepared and protect your business. Business succession is a plan for transferring the ownership of the business when the current owner retires, leaves, or is otherwise unable to run the business.
It is up to you who you transfer the business to, and by creating a comprehensive roadmap and setting clear intentions, you can ensure your business stays in good hands.
Possible succession plans
Many choose to keep the business with a familiar face. For family business succession planning, this can involve passing ownership to the next generation and maintaining the family legacy. But lineage should not be the only contributing factor, as leaving the business to someone with ample experience and a vested interest is essential.
Management Buyout (MBO) involves the existing management team buying the business, meaning it is left with a trustworthy team with strong inside-knowledge. You also have the option of setting up an Employee Ownership Trust and allowing your employees to hold shares within the business and make decisions together on how it is run.
Alternatively, if you would prefer to be completely distanced from the business, you can do a Trade Sale and sell the business to another company. This involves the transfer of ownership, employees and assets. You also have less control over how the business is run in your absence.
Preparing for selling
One you have selected a candidate from the talent pool and they have agreed to take over the business, you should create a detailed plan to prepare for their succession. If they are a current employee, focus on leadership development and allow them to learn firsthand about running the business.
Discuss your plans with an accountant and get professional insight so you can do your due diligence. Transferring ownership can lead to differences in how much capital gains tax you pay, and you may have to sort outstanding finances before selling to an external company.
Create a plan detailing the timeline to prepare for the business handover, the successor(s), a business valuation, any key documents the new owner will require, and how/when you plan to tell staff and shareholders.
Business and estate planning is the best way to maintain your business’ value market position and legacy in the case of unforeseen circumstances.
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