Succession Planning – Why is it so important and how do you go about doing it?
Successful succession planning allows for a family business to pass through to the next generation, with a smooth transition and minimal impact to business. Succession planning can start as early as the day that you commence business.
It is better to have a plan in place, even if it’s a rough plan that needs to be refined over time. A good succession plan is linked to your business plan and encompasses the business goals and strategies for the next few years. With any succession plan clear communication with the parties involved is critical so that they are fully aware of what is to happen to the business upon your retirement or your unexpected passing.
A successful succession plan allows for the potential to maximise the proceeds from your business. Your likely successors could be family members, part of the management team, third parties or a combination of both.
The succession plan needs to detail what assets to pass on, what are the current entity structures and how to go about transferring those assets to the next generation. It could be by gift, sale, or lease. It could be a part of your estate plan with assets transferring via your Will. Or a combination of any of the above.
Going through a succession planning exercise may result in the need to restructure the business and its ownership. You need to consider the tax implications of a succession plan. And how you will deal with a distribution of assets with various family members who may have different goals and objectives.
Every plan is different, no two situations are the same and the plan may well change over time. Any plan needs to be flexible, provide asset protection, have considered all taxation issues and also consider family equality issues in any division of assets. It requires open and honest communication and is best devised with the help of experienced advisers and specialists in the area of estate planning, taxation and negotiation.