At Leading Strategies, it is really important that we spot trends across the businesses we work with, least of all because it helps us assist other companies to avoid the same pitfalls. One of the most common issues that we see again and again is the failure of established business owners to plan for the future. In many cases, there will be a rough idea of how they wish to exit the business but no real thought as to how that may work. In family businesses especially, where relatives may already have their own opinions and ideas about their role in your newly transferred business, it is absolutely critical to conduct a succession planning exercise at the earliest stage to ensure there are no nasty surprises when the time for transition arrives.
I thought it would be useful to share some of the most frequent myths surrounding succession planning to help you avoid making the same mistakes!
- We have all the time in the world
If I had a pound for every time I hear a business owner tell me the above….With succession planning, the key is to always start early. In the same way large corporates will demand a succession plan from an ageing chairman, you too should place the same importance on the process in your smaller business. Starting earlier means you have the time to make careful decisions and that you won’t be rushed should anything negative impact the business. Get on board a good, trusted advisor who can work with you to put your plan into action.
- It will be easier to sell externally?
We often find that in order to avoid the uncomfortable discussion with family members, business owners will make the decision to sell to a third party. Whilst in many cases this can be a viable option, don’t underestimate the impact that this decision can have on your relatives. Be prepared, you will need to justify why looking closer to home isn’t the right option – suddenly selling externally may not be the ideal solution after all!
- My successor will be ready when I am
Going back to point 1 – start preparing your successor as early as possible. It isn’t just about sharing the knowledge of the day to day business operations, you need to give that individual the opportunity to establish and grow the relationship with suppliers, customers and staff. Throwing them in at the deep end on day one is sure to lead to failure.
- The business will stay the same
Be prepared – you might need to bite your tongue! Any successor is likely to have their own ideas about how they want to the business to run after you have left. It may not be entirely in keeping with the way in which you have built and run the business, but accepting that sometimes a change can be positive will help you move forwards.
- The fairest way is to divide the business equally
Be prepared, this is a BIG one. Many business owners believe the easiest way forwards is to dish out a slice of the pie to each potential successor. In reality, is sharing the business between a child who has actively participated in the company with two other siblings who have pursued alternative interests the fairest way to share things out? Would all three be entitled to equally manage, own and receive income from the business? It is an emotive subject and it is likely that somebody will be disappointed with your decision, but remember, it IS your decision to make. Again, having early conversations will prepare all parties for the likely course of action.
- When I’m gone, I’m gone
Don’t view your succession plan as ‘all or nothing’. Changing ownership of the business does not necessarily mean leaving the business completely, giving up control or reducing your income, in fact, handing over part ownership to your successor at an early stage can have fantastic tax benefits. An effective succession plan will result in a range of financial benefits, tax advantages and the overall satisfaction that you are building a legacy for the future.
Jamie Playford and the team at Leading Strategies are well placed to support business owners who have identified or are experiencing business issues. Get in touch today for your free, confidential, no obligation discussion to see how we can help.