While many people have set up and run their business for years, few have mastered the art of knowing when the time is right to sell the business or indeed to ensure that it can survive in the ab-sence of the original founding owner.
Without proper planning, clashing views and agendas can pull the company in several directions which can destroy an otherwise viable business.
With so much at stake, succession planning has to be a business priority and should be part of every business plan.
There are two main options available:
Succession plan
Planning the succession of a business is no different than any other type of business planning. The first step is to have a formal plan in place.
A plan should consider the following:
In retention planning, special consideration must be given to the family: are family members inter-ested in and willing to work in the business, and who are the family members with the ability and skills to run the business?
Factors that should be taken into account when choosing a successor include people skills, com-mitment, professional education and their track record.
It is important that general information about the business such as the company's history, financial statements, key skills and knowledge, competitors, market share, key customers and contacts is obtained, as this can assist in the buying decision making process.
It must also be borne in mind that key information is often not documented or is not immediately identifiable, such as information the departing owner may be aware of regarding products or com-petitors.
Legal considerations and Tax
A succession plan should never be left until the last minute as it is a significant project and many aspects will require time to implement or to allow a smooth transition to the new owners.
Financial peace of mind is a crucial ingredient in a successful retirement of the owner or transfer of the business.
Financial planning for the business will have a direct effect on any estate. Careful consideration should be given to the estate and gift taxes associated with transferring a business interest to fam-ily members. A financial professional is instrumental in defining these pitfalls and helping minimise the possible transfer headaches.
Family businesses need to have legal issues carried out by professionals. It may seem like just more paperwork, but documents like shareholders' agreements are key to avoiding confusion.
A succession plan should also deal with the issue of the death or sudden illness of the business owner.
By proper planning, anxieties surrounding income and security for surviving family members and employees can be minimised. In this regard, a will is vital as, if carefully drafted, it will ensure that assets are transferred to the intended beneficiaries. It is also important that, having prepared the will, it is maintained and kept current.
Mike Davey, Solicitor for DPA Law says: “Without succession planning, a business that has be-come successful can just as easily fail. The passing of the baton from one generation to the next is often clouded by the family and stakeholders' differing views and agendas, as well as emotion”.
If you are a family run business and need assistance in relation to succession planning, DPA Law can advise you of all legal considerations. Please feel free to contact our business services de-partment by email mike.d@daviesparsonssolicitors.co.uk or by telephone on 01554 749144
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.
Posted by Peter Nicholas on Tuesday, January 03, 2012 at 11:50 AM