Business succession planning involves a series of logistical and financial decisions that ultimately decide who will take over your business upon your retirement – or in the event of your death or severe disability. There are five common ways to transfer ownership of your business. You can sell your shares or ownership interests to a co-owner, key employee or outside party, or you can pass on ownership interests to a family member. You can also choose, in the case of a business with multiple owners, to sell your interest back to the company.
Every business needs a succession plan. While you may not plan on leaving your business, sometimes things happen unexpectedly. If you have to leave on short notice, it's better to do so with an established protocol for this action on hand.
The basics of succession
Business owners should have a succession plan ready whenever a transfer of ownership is on the horizon – whether they intend to put their business up for sale, retire or transfer ownership to a trusted party. Having a clear succession plan written ahead of time will ensure the business operates smoothly throughout the transition. The last thing you want is for your exit to disrupt business operations.
This plan should include considerations like a succession timeline, which defines the circumstances under which the succession protocol would go into effect and provides specific dates for various steps of the process. It must also feature a list of potential successors, depending on whether you're selling your ownership to a co-owner, employee, family member or other party, according to Business.gov.au.
The succession plan of action or protocol should be broken down as formalised standard operating procedures. According to Nacre, SOPs are step-by-step instructions for a given business operation that ensures compliance with the law, industry regulation and your own business standards. Having SOPs will help ease the transition between owners. Lastly, be well aware of your business' value before you sell your shares and also have an idea of how your succession will be funded. Are you paying for it with company money? Life insurance? Some other way? It's important to have these questions sorted out before the succession process begins.
How to successfully implement your plan
The best advice for implementing succession guidelines successfully is to stick to the plan. If you have a good idea of how you want everything to proceed, all you need to do is ensure everything goes smoothly. Consider the following steps to create a good succession plan for your business.
- Identify the goals and objectives of the plan. Know specifically what your organisation hopes to accomplish.
- Assess the current and projected needs of your employees. Consider using employee job descriptions, surveys, interviews or information from various subject matter experts to help you. Take people's input into consideration when forming your plan.
- Identify the possible methods for meeting the needs of your organisation. Then, identify the method for rollout, implementation, monitoring and change. Make sure the actions in your plan ensure employees remain adaptable, prepared, effective, and efficient. Set a reasonable timeframe for the transition.
- Implement your plan and monitor and evaluate progress as it proceeds. Be prepared to modify the plan if it does not align with your organisation's goals.
For more information about business succession planning and related topics, be sure to browse the WMC Accounting website. We offer a wide array of services to meet the needs of businesses and enterprises of any size. We help fuel your appetite for growth while protecting your bottom line. Contact us today to learn more!