Any successful business that has been around for some time has, at its core, a framework of planning. Annual financial and business plans, long-term strategic plans, performance management plans and production plans all serve to place structure into daily operations. Businesses need plans because they serve as a directional tool to keep everyone focused on set goals. When day-to-day operations become chaotic, as they can, the plan is a reference point to bring them back to order.
Businesses that don’t plan typically don’t survive in the long term. They may have everything else going for them, great product and the best staff, but at the first sign of trouble, they are like a rudderless ship. They may weather the first few storms, but eventually there will be a major crisis that causes them to flounder. Good business operators know this, so it almost defies belief that many businesses operating long term, sometimes for 40 years or more, have no succession plan in place.
The business world is littered with the remains of once-successful businesses, many of them quite large and well-known, which slowly faded into oblivion. Usually the major driving force has either retired suddenly without a proper hand-over process, or died leaving a vacuum. Without a clear line of succession, power struggles begin and the management team becomes so dysfunctional, they can no longer run the company. Competitors take their market share and the company dies a slow death as a result.
Every business owner should have a succession plan, no matter how small or large the enterprise. Many know it but have put the idea aside to get on with their day-to-day management. It doesn’t have to be this way, especially when there are many business advisers available with the skills to help business owners put a succession plan together. Engaging the help of an accountant to work on it allows the owner to get on with running the business.
Some owners try to draw up a succession plan themselves but in doing so they often miss important details or don’t ask themselves the right questions. Items that need to be considered include setting a definite date for the current owners or directors to retire and issues of ownership and how that will pass into other hands. There are also financial considerations such as having capital available to pay capital gains tax if the decision is to sell the business upon retirement.
If the business is a family company and the plan is to hand over to the next generation to manage, this is a different scenario altogether. Sibling and family rivalries can quickly bubble to the surface and disrupt the business. Having a third party such as your accountant involved in getting the plan together can be useful when people who have been overlooked question motives. It is much easier to refer them to a document developed by an objective outsider than have them think they have been overlooked for ulterior reasons.
Succession plans pave the way for a smooth transition to new ownership. They set out guidelines, give direction when questions are asked, set actions and timelines for certain processes to occur, and cut through most emotions and illogical assumptions. Anyone responsible for a business or organisation that has no succession plan is leaving the way open for all their hard work to come to nothing.