What is a Succession Plan?
If you own a family business, you need a solid succession plan in place. Succession planning involves identifying and preparing the next generation of business leaders to ensure a smooth transition of the business's ownership and management. For some, this may be a straightforward process and, for others, it can be a very emotional and stressful time, particularly if it is a business that you have put your life and soul into over the years.
Which Option Do You Go For?
1. Gifting the business
There are many questions surrounding gifting the business, such as:
- Who do you give shares to?
- Do you treat all your children equally? Does fairly mean equally?
- What about those children who are not involved in the business now?
- Consideration of the wishes of non-family directors/shareholders (if any)
- If you plan to make the gift by Will, check that your Articles of Association and Memorandum include the right authority.
- If you expect remaining shareholders to buy the shares from the beneficiaries, consider how this will be funded.
- Key person insurance may be necessary.
2. Planning for the sale of the business
Selling the business provides the opportunity for the current owner to realise the value and have the funds to retire. When is the best time to sell? Is your business ready to sell? Our "Selling a Business Guide" will give you more information.
We would advise that you:
- Create a stable financial plan for the year.
- Sell any redundant equipment and property
- Tighten up stock control, making provision for old stock as appropriate
- Make sure the premises look well maintained and tidy
3. Gradual handover
A gradual handover allows the current owners to be paid out over time which may be better for the business financially and it also gives chance for younger family members to start getting involved in the business.
You might also consider a transfer of management before ownership. This would allow a balance between outright transfer and retaining some management control. You might want to ensure the next generation have the capability to run the business before handing it over and losing control altogether.
