The operational demands of running a family business or other closely held enterprise can be all-consuming, but it’s vital that business leaders take the time needed to assess their organisation’s business succession planning. The penalty for failing to get ahead of leadership or ownership changes can be significant, as the coming years may bring substantial transfers of wealth as businesses change hands and adopt new ownership structures. The long-term survival of a business, and the preservation of the wealth that has been built, will likely depend on getting ahead of those changes through strategic succession planning.
For private, owner-managed, or family-owned businesses, a solid succession plan can drive the growth of the business, reduce taxes, and set the stage for retirement. Family-run businesses may benefit further by focusing on preserving harmony within the family.
This is not a subject to be put off until later; to be done successfully, it needs to be an integral part of a company’s business strategy and operations.
No one goes through the work, risk, and sacrifice of starting a business without hoping it will last.
Building value that endures is the dream that motivates entrepreneurs. Yet in many businesses, too little of that work goes into determining who will take over when the founders leave the stage.
For a business, working without a succession plan can invite disruption, uncertainty, and conflict, and endangers future competitiveness. For companies that are family- owned or controlled, the issue of succession also introduces deeply emotional personal issues and may widen the circle of stakeholders to include non-employee family members.
The next 10 to 15 years
may bring substantial transfers
of wealth through business ownership handoffs across generations and other new ownership structures. The long- term survival of those businesses,
and the preservation of the wealth they have built, will depend upon a clear and early focus on strategic succession planning.
The need for planning
Succession planning is a multidisciplinary process. When you engage in succession planning, you’re not just focusing
on the future, because it’s impossible to plan for the future without a deep understanding of the present.
Leaders have to know the current reality of their businesses — how they operate, where the value lies, what their needs are,
who their most vital customers are and why — in order to prepare for new leadership and new structures that can provide continuity in the ways that matter.
There are many benefits for companies and owners who plan properly and strategically for an orderly transition of management and ownership:
Succession planning — a starting point
Compare your status quo to the questions below. If one or more “no” answers reveal deficiencies in your approach, know that you aren’t alone — and that it’s not too late.
- Have you defined your personal goals and a vision for the transfer of ownership and management of the company?
- Do you have an identified successor in place?
- If applicable, have you resolved the family issues that often accompany leadership and ownership decisions?
- Does your plan include a strategy to reduce estate taxes?
- Will there be sufficient liquidity to avoid the forced sale of the business?
- If succession will one day require the transfer of assets, have you executed a “buy-sell” agreement that details the process ahead of time?
- Is there a detailed contingency plan in case the business owner dies or becomes unable to continue working sooner than anticipated?
- Have you identified and considered alternative corporate structures or stock-transfer techniques that might help the company achieve its succession goals?
- Have you determined whether you or anyone else will depend upon the business to meet retirement cash flow needs?
- Have you recently had the business valued and analyzed in the same way potential buyers and competitors would?
A good plan takes time to develop and implement.