Planning for a successful business transition
In all successful businesses the issue of succession from the current owner to the next generation comes up, and one question that often arises is: when is the most appropriate time to begin planning for succession? The start-up phase is obviously too early, but all too often business owners wait until the last minute – when many options are closed before beginning the process.
Once the business has survived the start-up stage, the founder should begin giving consideration to succession, regardless of his or her age. Over time, as the business evolves, they must commit to the concept that the business has to continue in order to create opportunity for the next generation. Traditionally, this has often been from within the family, but this is changing as fewer business owners want or expect their children to step into their shoes and children of business owners are increasingly working outside the family business and not intending to take over from their parents.
However, the organisation cannot survive unless it is staffed with the best people and recruiting good people will always pay dividends and is a key item in succession planning. Investing time in developing your family and/or other management team members and allowing them to exercise authority and control is key to a successful transition.
Having developed a successful transition plan and recruited the right people, selecting a successor or successors becomes easier. By empowering a broad range of key people, the selection process is simplified and options are enhanced.
Ultimately, it will become time for the founder to announce his or her future plans. This gives key management people and family successors a clear path to the future and a definite goal.
In implementing the succession plan, the founder must be ready to step aside and allow his or her successors to take over. The founder needs to be prepared to take on new challenges in retirement knowing that his or her financial future is secure.
With family succession becoming less of an option, business owners are faced with the problem of how to extract themselves from their business when the time comes for them to retire or move on to another venture.
Other than passing your business interests on to members of your family, the principal options for disposing of them are:
- Selling your share in the business to your co-owners or partners
- Selling the business to a third party
- Public flotation or sale to a public company
- Selling the business to the management or entire workforce
- Winding up the business
Each of these options requires careful planning. Besides the complexities of the legal arrangements, there are important matters such as valuing your share of the business and timing the disposal to minimise your tax liabilities and maximise your gains.
These are matters in which we have considerable experience and expertise. Call us if you would like guidance on developing and implementing a business exit strategy.