Dylan Cresswell, Partner - Wealth Management
Business succession planning is crucial for any business owner who wants to ensure their legacy is preserved while achieving a smooth transition of ownership. Whether you plan to sell, pass the business to family, or transfer control to employees, a well-structured plan is essential to minimise disruptions and maximise the business’s value.
Here is a checklist of key steps to guide you through the process of creating a successful business succession plan.
Start Early – Define Your Long-Term Goals
Succession planning is not a task to leave until the last minute. Starting early allows you the flexibility to explore all your options. The first step is to clearly define your goals. Do you want to sell to a third party? Transfer the business to a family member or key employee? Knowing what you want out of the transition will inform your strategy and help you prepare your business for the future.
Succession planning is not a task to leave until the last minute. Starting early allows you the flexibility to explore all your options. The first step is to clearly define your goals. Do you want to sell to a third party? Transfer the business to a family member or key employee? Knowing what you want out of the transition will inform your strategy and help you prepare your business for the future. If you don’t yet know – ask someone who does to help set out what each of these options entails.
Accurately Value Your Business
A critical element in business succession planning is determining the true value of your business. Whether you’re passing it down to family, selling to an employee, or preparing for a third-party sale, a professional valuation is essential. An accurate valuation provides clarity on your business’s worth and helps you structure the financial aspects of the transaction, ensuring that both you and your successor are making informed decisions. Working with a valuer you can also understand what commercial elements will drive a higher value and potentially emphasise these or structure towards these in your planning.
Select the Right Successor or Buyer
Choosing the right person to succeed you in the business is a pivotal decision. If you’re transferring ownership internally, it’s vital to evaluate the readiness of your chosen successor—whether a family member or an employee. On the other hand, if you’re planning to sell the business, finding the right buyer is essential. The right buyer will vary depending on your personal circumstances and desires. For some, this may only be financial (i.e., the highest bidder); for others, it may be one who can continue to look after the team and the brand you have built up. For some, it may be the quickest to execute.
Plan for Tax and Legal Considerations
Tax efficiency is a key part of any succession plan. The tax implications of selling or transferring ownership—such as capital gains tax or stamp duty—can significantly affect the net value of the transaction. Proper planning with the right tax strategies can help minimise these liabilities, ensuring that you and your successors retain as much value as possible.
Additionally, legal considerations, such as shareholder agreements, buy-sell agreements, and trusts, are essential to ensure the business is protected during the transition. These legal frameworks help safeguard against disputes and ensure that all parties are clear about their rights and responsibilities.
Prepare for Remuneration and Incentives
When transitioning the business to key employees or family members, it’s essential to plan for remuneration and incentives. Structuring appropriate remuneration packages for future leaders or key employees can help align their interests with the long-term success of the business. This is especially important in an internal succession where you need to retain top talent to maintain business continuity.
Communicate Clearly with Stakeholders
Effective communication throughout the succession process is key to ensuring a smooth transition. Whether it's informing family members, employees, or business partners, clear and transparent communication will help manage expectations and reduce uncertainty. This ensures that everyone is on the same page and understands their roles moving forward.
Conclusion
A successful business succession plan requires careful thought, accurate planning, and expert advice. By defining your goals, valuing your business, addressing tax and legal issues, and planning for remuneration, you can ensure a smooth and tax-efficient transition.
We offer a comprehensive suite of services to support you throughout the succession planning process. From business valuation, accounting, tax compliance to Corporate Finance (M&A) and remuneration consulting services, our team of experts are here to help you structure the transition, optimise your financial outcomes, and protect your business’s legacy.
Ready to plan for the future of your business? Contact us today. We will be happy to expand on these elements and discuss how we may be able to offer tailored advice on your own succession strategy.
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