Family Business Blog
Jan 08, 2018
Succession Planning — Not If, But When
Where will your business be in 5-10 years, or when you decide its time for you to do something else? Exiting the business is not a question of if, but when. Planning for the eventuality helps provide you with some say in how the future unfolds.
Business owner-managers considering exiting their business have two options: transfer (continuity of the business) or termination (cessation of the business).
If you choose to transfer the business, you can -
The first three options will result in a realisation of the family’s wealth that is currently locked up in the business. The last, succession, often involves the transfer of wealth from one generation to the next.
The main reason for exploring exit options and undertaking business continuity planning is to maximise the realisable value of the business and provide business owners with peace of mind. This applies whether the business is sold or taken on by willing and able family members.
Business owner-managers considering exiting their business have two options: transfer (continuity of the business) or termination (cessation of the business).
If you choose to transfer the business, you can -
- Sell to co-owners or unrelated partners
- Sell to staff –usually long term employees with the ability and financial resources
- Sell to third parties
- Transfer to family members
The first three options will result in a realisation of the family’s wealth that is currently locked up in the business. The last, succession, often involves the transfer of wealth from one generation to the next.
The main reason for exploring exit options and undertaking business continuity planning is to maximise the realisable value of the business and provide business owners with peace of mind. This applies whether the business is sold or taken on by willing and able family members.
Continuity and succession planning helps you to -
Do you have potential successors who are both willing and able? To have a successful succession, you must ensure that you have successors, willing and able to take over the business, based on agreed timetables and conditions.
- increase the economic value of the business and provide owners with considered exit options and strategies.
- safeguard the long term health of the business and revitalise strategy
- identify, prepare and install successor(s) and map out roles for other family members'
- protect and reward loyal employees and perpetuate employment opportunities
- provide financial security for the current owners and their spouses in retirement
- make the most of family assets and preserve wealth
- give opportunities to children by passing on the rewards of ownership
Do you have potential successors who are both willing and able? To have a successful succession, you must ensure that you have successors, willing and able to take over the business, based on agreed timetables and conditions.
Transferring the business to successors is about —
It’s about creating a ‘win-win’ strategy based on a genuine partnership.
- creating a shared vision for the future of the business and
- working co-operatively during the transition period to achieve results that meet the expectations of all parties’.
It’s about creating a ‘win-win’ strategy based on a genuine partnership.
Key Elements of a Succession Plan
The backbone of any succession effort is a good plan. The document is the culmination of a process, and acts as a guide to managing all the issues that are likely to surface. It will deal with issues such as -
Once complete, the plan should be reviewed annually to ensure that it keeps up with changing circumstances.
- the process for choosing a successor
- the personal development for the successor
- the evolving leadership roles of incumbent and successor, including job descriptions for both at various stages during the process.
- ensuring a meaningful and financially secure retirement for the current leader
- communicating the succession decisions to the family, the company and the community.
- considering future family participation in the business.
- organisational succession, covering evolution of top management and the board, career paths for key managers and
- future family participation in the business
Once complete, the plan should be reviewed annually to ensure that it keeps up with changing circumstances.
Where do I start?
Take a few minutes and write a page in answer to each of these questions:
- What do I want for myself?
- What do I want for family?
- What does my family want?
- What do I want for my business?
Questions for the Incumbent
Here are some questions which the incumbent should consider —
- How long do I want to be actively involved in this business?.
- Do I want to preserve the business for the next generation or sell it for the best price?
- What’s my best exit strategy?
- How can I be fair to all children and minority shareholders (some of whom may not be employed in the company)?
- How do I work harmoniously with family members, moderate conflict and simultaneously manage a company for profit?
- How will I choose, train and empower future leaders and successors?
- Do my children have what it takes to ensure the ongoing growth & profitability of the business?
- How will I ensure the interests of all children are fairly dealt with?
- How will I achieve the objectives of the next generation without sacrificing my dignity and financial security?
- Can I accomplish this transition myself or should I look for outside help?
- Should I include outsiders on the Board of Directors or an Advisory Board.
- What will I do to give meaning to my life, once I’m out of the business
Questions for the Successor
From the successors perspective considerations include –
- understanding the true reasons for accepting the role.
- Is it from a sense of obligation to the family, the perks, or just that it beats working for someone else?
- what happens if it doesn’t work out?
- What other opportunities do I forgo? how will the timing work?
- Am I prepared to stay even though contemporaries seem to be moving up the ladder in the corpora te world?
- how will I work with other family members involved in the business?
- what will I be able to contribute to the ongoing growth and success of the business?
- will I be able to create a leadership persona that is distinct from the current leader?
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