Benjamin Franklin famously said, “If you fail to plan, you are planning to fail”, and this couldn’t be more true when it comes time to move on from your business. Research shows that succession can take more than 2 years to plan and so ideally should be a part of your overall business strategy. Whether you want to retire or to take on a new challenge, developing a comprehensive exit plan for handing over your business is something which should be considered sooner rather than later. So, where do you start?
First you need to consider whether you will have a family succession or a management buyout. While many business owners would love to have a member of their family take over control, sometimes they are not interested so it’s important to establish early on who will be the new owners. You may even decide to wind the business up so you need to consider all of the options well in advance.
This will then determine what else you need to include as part of the plan. There are 3 broad areas which you need to consider: financial, legal and operational strategies. Some of the issues you should think about under each strategy are as follows.
- Are you selling or gifting the business to your successor?
- What is the market value of the business?
- What are the tax and financial implications of the succession plan?
- If you are retiring, what income will you require?
- Will there be a change in the legal structure of the business?
- Have you considered intellectual property and privacy policies?
- Do you need any legal documentation to outline the terms of the succession?
- Do you need to change/transfer any licences, permits or registrations?
- What are your successor’s responsibilities and what are yours?
- Will you remain involved in the business as a consultant, and for how long?
- What will the business look like when you leave and who will undertake key roles?
- Have you informed key suppliers and clients about your succession plan?
Transition to new ownership won’t happen overnight so it’s important to allow plenty of time for the process to take place. It’s also vital to keep employees and other stakeholders informed so they have a clear understanding of what is happening and when.
At some stage, you know you will have to let go of the business. Get some advice from your accountant to ensure you are getting the maximum value. By having a comprehensive succession plan in place, it should be a smooth transition.