At some stage you will decide to leave your business; perhaps you have decided to sell, retire or do something else. Regardless of the reason, having a succession (or exit) plan in place will help you to smoothly transition out of your business. You can start succession planning years ahead of time; having a plan can be useful if there is an unexpected event, such as illness or death. Without a plan the future of your business can be at stake. Early planning also helps you to maximise the value of your business.
Developing a plan
Make sure your succession plan is realistic and achievable. You may want to discuss it with your business adviser, accountant or lawyer. There are no set rules about what to include in a succession plan, however you may want to include details of:
- the successor; family member, business partner, other
- succession type; partial or full succession
- key personnel changes and skill retention strategies
- legal considerations; buy-sell agreement, reference to a will
- risk management
- communication strategy
- financial considerations; retirement income, sale price, tax implications.
Keeping the business in the family
If you decide to leave your business to a family member consider the legal obligations, as well as the impact on family relationships. Consider involving a lawyer or business adviser in discussions with family members to avoid disputes relating to inheritance, ownership or management.
A buy-sell agreement is a legally binding agreement between partners or co-owners outlining what will happen if an owner dies, is forced or chooses to leave.
The agreement will determine:
- who can buy the departing owner’s share of the business
- the circumstances that allow the share of the business to be sold, such as retirement, death, disability or leaving the business
- the price that will be paid for the share of the business.
You may also consider other exit options such as:
- selling the business
- closing the business
- hiring outside management to run the business.
Your accountant can advise on the best option.
Review your plan
Once you have created a succession plan make sure you regularly review it especially when circumstances change.