One of the more challenging issues a business must contend with is managing the succession to the next generation.
Although this should be a time to celebrate the businessโs success and longevity, disputes often overshadow it. These disruptions can seriously harm a business’s development and productivity.
Unfortunately, succession planning is often low on the priority list. Most acknowledge it is important but not urgent, and so it often isnโt addressed until some major life event, which is too late.
Advantages of early succession planning
The succession planning process should begin well in advance to ensure a smooth leadership transition. This prevents owners from making hasty short-term decisions that lead to larger problems for the business in the future.
Establishing a clear plan as early as possible assists in long-term business decision-making and lessens the risk of disputes or disappointment.
Key components of a succession plan
For a business, it is critical that the succession plan considers timing and expectations around when and how you plan to retire. It should deal with issues such as who is most suited to running the business and what that means for other family members or business partners.
When succession planning for a business, it is important to include everyone in the planning process. Allocating time for succession planning sessions fosters an environment of inclusion, responsibility, and ownership, but it can require outside assistance to ensure objectivity and control emotion.
Careful consideration is required to ensure the fair and equitable allocation of assets. If the business operation is going to be shared, itโs vital that families establish a decision-making hierarchy where each business partnerโs roles and responsibilities are clearly communicated. This will address any differences in age, experience, and mindset.
Another important consideration for succession planning in business is that the handover makes financial sense for those exiting the business and those continuing.
Others may include whether you can afford to hand over the business or whether the operation can support more than one family. If not, ensuring fairness for multiple siblings can be a key point of contention that requires resolution.
Likewise, the structure of the business and its financial implications โsuch as who owns assets and the impact of capital gains tax or transfer costs โ also need close attention.
While it sounds as easy as stepping out of the business and having another family member or business partner take over, an effective business succession plan requires careful attention and organisation.
