Succession planning: how to get started

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As a busy business owner, it’s always challenging to find the time to work ‘on the business’ as well as always ‘in the business’. Yet planning for the future of your business – or ‘succession planning’ – is not only a plan for retirement, it’s a plan for managing the unexpected.

While being self-employed can be a rewarding choice, understanding the responsibility you have toward clients, employees and family members in the face of unexpected circumstances underpins the vital nature of succession planning.

“An inadequate or complete lack of succession planning for any business can come at a huge financial detriment to the individuals left to deal with the aftermath,” explains Director at Seaview Consulting, David Fotheringham. “The strength of any business is in its ability to operate without the key principals or founders.”

What factors should you consider when creating a succession plan?

A sound succession plan should take into consideration all the factors that will come in to play when someone else is at the helm of your business. This includes everything from procedures and policies to the specifics of your business financials.

“Succession planning is all about clarity and articulating how your business can continue to operate in the future,” explains David. “This includes considering how the business could successfully change hands.”

To start, consider your objectives for the future. Do you aim to sell your business to a larger building corporation or another small business owner? During this process it will be necessary to examine your current business structure. For example a family trust can present challenges including significant tax implications.

“Taking the time to analyse your business structure and potential options is inexpensive but essential to achieving the best possible outcome from your succession plan,” says David. “Education is the first step to making informed and appropriate succession-planning decisions.”

From here you will be better able to determine your succession planning options. Choose a path that best suits the needs of your business, your family, clients and staff.

Ensure your plans maximise the chance of a smooth transition. This could include an agreement from a buyer to take on your staff or the notification of long term contractors and major clients. The final step is to document your succession plan clearly and simply – making sure you share your plan with those most important to you, especially family, or those who are likely to take on a bigger role as part of the plan. Transparency and preparation are key to ensuring a smooth transition when the time arises.

When is it a good time to start succession planning?

It is never too early or too late to consider the succession plan for your business. A succession plan can be as important as your business plan to the ongoing success of your company.

“We would encourage any building or construction business to build succession planning into annual strategy discussions,” says David.

“Review your succession plan on an annual basis. Consider key resources and principal areas – a potential buyer may have closed down, or market prices may alter the value of your business. Refine and make adjustments or amendments as necessary.”

What will succession planning look like in the future?

“Further into the future it will become increasingly important to consider the true market value of your business,” says David.

“Younger generations do not have the capital and are simply unwilling to invest the large sums of money once considered reasonable when purchasing a successful business. Without an honest evaluation of your businesses, serious financial implications can result.”

Creative solutions for ownership transfer including vendor finance or the partial sale of a business with some security still held by the pervious owner.

“These are all common options that could be considered by today’s business owner,” explains David.