If you are running a business, regardless of size, you should have structured and documented exit plans in place to ensure that the entity continues to exist and thrive beyond the time frame where the current management or owners are involved. The process by which these documents are developed is called business succession planning, and failure to do this with sufficient thought and detail is the reason why many businesses struggle or fail completely when the time comes to hand over to the new guard.

If your business doesn’t have these exit plans in place, it is already at risk of unravelling should key people in the organisation leave abruptly with no successors selected or trained. Even though your company or business may be solid, with long-term contracts, skilled staff and sound management systems, there are key questions that need to be answered and actions taken based on those answers. And the time to act is now.

Some of the questions are quite basic e.g. when are the current directors/owners planning to retire? This seems simple enough but without a definite time frame, it is very difficult to prepare people for new roles while they are still giving all their attention to their current duties. A good place to start is arranging a time for meet with your accountant to discuss the answers to these and many other questions that you need to consider when drawing up your succession plan.

Now that we’ve started the ball rolling, let’s throw in another question. How will ownership of the entity pass to the new guard? This will depend on the existing ownership structure and what the intentions are e.g. if it is a family business, it may be that a change of directors is required. In that case, how will the purchase of shares be funded? If the intention is to sell the business to fund retirement, this is a whole different ball game. How will the sale be managed? Will the sale attract capital gains tax? These are questions best answered by an accountant.

There are a number of issues that you as the business owner or manager may not have thought about. Issues such as protection of existing staff entitlements, guarantees of employment for a specified period of time after the transfer, the ownership of product licenses and patents, the distribution of shares and many other considerations all need to be worked through and documented in the succession plan.

Once this has been achieved, the exit plan is useless if it simply sits on a shelf. Your accountant can also advise on implementation strategies and assist you with a structure that will guide you through the actions required and the time frames for completion. Having tools like checklists and action plans for significant milestones sets in place a process that anyone with the decision-making authority can follow.

It’s tragic that people spend years building their business and contributing their time, energy and passion to giving service and providing products to their customers, only to have it all fall apart when the key driving force leaves the enterprise. Don’t let that be your legacy.

Download our guide to succession planning and get started today.