It is a question that every business has to face: how do
we plan for the future?
What is succession planning?
In short, it is the process of ensuring that a successor is in place to drive the business forward once its owner, leader or other key person leaves (either by choice or by circumstance). It is a process equally relevant to non-profit making organisations and has, as its goal, the avoidance of uncertainty, missed opportunity and disorganisation during times of transition.
Planning, planning and more planning!
We recommend a 3 stage approach to succession planning which is designed to ensure that both you and your business are properly taken care of throughout.
Stage 1 – Talent Management
Developing the strengths and experience of your workforce should be seen as an on-going process rather than a knee-jerk reaction to a specific need or threat. Many business strategists recommend the identification of a pool of talented potential leaders. Within this pool businesses should seek to foster a shared culture and ethos. In turn, this will increase their commitment and understanding of the business. In smaller organisations a pool of potential leaders may simply not exist: the range of successors may be narrowed to that of trusted 'second in command' or family member.
Stage 2 – Options for succession
Ensuring that the successor is best placed to take over the reigns of the business on succession requires careful legal planning. In the grooming stage (stage 1) potential successors may be incentivised by share option schemes (such as Enterprise Management Incentive Options), salaried partner positions and/or company directorships. It is important to seek the right balance between achieving 'buy in' to the business and giving away control/ownership. We can advise you on the different options available and the practical effects of a potential successor joining your business.
We can also advise on the eventual sale/transfer of your
business, whether by way of a formal sale to an existing employee
(management buy out) or more informal inter-family transfer.
Stage 3 – Estate Planning and Management
At a personal level there are two particular aspects to
consider.
First, what happens if you become unable to manage your affairs
during lifetime for whatever reason – as a result of an
accident or illness. This can be covered by completing a power of
attorney nominating someone else to handle matters on your
behalf.
The second matter is how your business interests – be they in a partnership, a company or as a sole trader – pass after your death. You will need to balance the interests of the business against the needs of your family. You will also need to consider the impact of any inheritance tax which is payable on death.
It will be important to have a will that addresses these issues in the most appropriate way. You will also need to keep the will under review to ensure it reflects any changes in the tax regime and also in the needs of the business and your family.
Finally, insurance cover may also be appropriate. There are numerous life insurance and "key person" insurance products designed to benefit both your family and your business in the event of your death. There can be particular advantages of creating trusts over the policy for both tax and other reasons.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.