Not to be confused with exit planning, a good succession plan provides a pathway for both a planned and emergency succession for your business.
It can stipulate a transfer of ownership and guide who does what for a period of time, helping to minimise disruption to your business if something should happen to you or your family. But succession planning is not just about preparing for the unexpected; it will also assist your transition into retirement in a very expected and controlled manner.
So whether you’re planning for retirement in 3 or 30 years, a good succession plan is another way your business will continue to grow and thrive into the future.
My name is Mick Godwin, and I see owners running their businesses with the notion they won’t have to worry about exiting for another 150 years.
But the reality is, it’s not just retirement, divorce, or worse where succession plans help; a good succession plan can determine the following:
- The transfer of ownership when the time comes.
- The transfer of senior management when required.
- Identifying and preparing younger employees.
- If a sale is necessary, it outlines how the sale is to be completed.
- Inheritance distribution of the proceeds of the sale.
- Identifies any tax advantages.
- It provides a safety net, so the business is prepared for unexpected disruptions.
- Reduces stress when transitioning out of your business.
These are all benefits of succession planning after the fact, but there are real tangible benefits of having a succession plan that your business can reap right now.
For example, some of your employees will be upskilled before any succession occurs. This will help with minor disruptions like a broken leg or you want to take an eight-week holiday.
In addition, it can lead to higher job satisfaction as employees see a pathway for their future and help ensure managers provide higher support to their employees.
And lastly, the benefit that we’re most interested in; it will increase the value of your business if you need to sell because the company is already prepared and ready to thrive for life after the owner.
Now that you see how beneficial a succession plan is for your business, where do you start? It does not have to be long or arduous. The good news is for small to medium-sized businesses, you can probably detail the whole process on a couple of pages.
First, understand the plan’s scope; is it just ownership succession or some key roles that need to be mapped out?
Remember, it’s not just relevant if you’re not around anymore; having succession plans for employees means their roles can be replaced without much input from yourself.
For key roles, are you looking internally or externally for a replacement? If you have potential candidates internally, then what skills will they require?
Share your plan with them; you would rather hear about their plans of moving interstate now rather than later, as they’ll likely continue to be a fantastic employee until they leave, just not a succession candidate.
When it comes to transferring ownership, this only has two considerations. First, is it just a transfer of ownership or general manager succession too? If it’s management succession, how much power will they have?
Will they have the first right of refusal to purchase the business if a family member doesn’t want the ownership, or do they want to sell it whilst the manager is still there?
Sometimes, key employees can receive a small percentage of ownership for the gratitude of service. This also provides confidence that the business will have stability for an unexpected event as family members might not have the capacity to make the right decisions.
You can have plenty of other considerations once you start going down the rabbit hole, but it doesn’t have to be extended. First, discuss some ideas with family members or key staff and then with your solicitor.
Keep anything to do with an exit plan separate. If you want to learn more about exit plans, keep following my articles for more on exit planning in the future.
If you want to know more about succession plans and what’s involved with selling your business, then get in touch with the details below.
I’m based right here on the Gold Coast, but I look after businesses right across the country because rarely your ‘best’ buyer is your neighbour.
I help my clients successfully exit their business at the highest price, in good time, and without stress.