Head of Business Succession Planning Paul Hunt investigates how and when business owner-managers should be starting the process of contemplating the long-term future of their business and potential implications for themselves and their families.
Succession planning is a process which is integral to the long-term success of any owner-managed business but one which can, inadvertently or otherwise, easily slip down the list of priorities.
That is entirely understandable. Occupied with the task of building and operating a successful business, it is not always easy to find the time and headspace to take a step back to review your position as an owner and/or manager of the business and plan for the future.
However, delaying strategic planning – and the legal process that may accompany it – can create commercial uncertainty and unwanted personal headaches in years to come.
From the outset, it is important for individuals to consider their personal aims and ambitions. Everyone involved in the business needs to understand what they want to achieve for themselves, their families and the business, before considering how these objectives will work alongside the plans of their business partners and family.
Is there a medium-term plan for individuals to retire from the business completely? Is there a vision of passing the business down through the generations of one or more families? Are shareholders looking to sell the company? Are there successors already in the business?
The answers to all of these questions will be tailored to individual circumstances and the goals of those involved – there is no one-size-fits-all approach.
However, one rule does apply whatever the business and whatever the circumstance. It is never too early to plan.
The earlier the goals and targets of everyone concerned can be identified, the better. Often, delay can further complicate issues and narrow the number of options available.
What is sometimes overlooked is that, even if little thought has been given to some of these issues, there are rules which will apply. The problem is that business owners may not know what those rules are, and it is likely that they do not operate as the owner would wish.
What rights do shareholders have to transfer their shares during lifetime and on death? What happens to their shares if they leave the business? If a dispute arises on a key issue, who has the final say? Does the business owner know the answers to these questions, or even know where to find them? The answers can often be surprising.
From a legal standpoint, provisions in the company’s Articles of Association and any Wills or Shareholders’ Agreements that have already been put in place may include answers to some of these questions.
Are those documents accurate and up to date? A good starting place is often to understand the existing arrangements and whether they are fit for purpose.
Beginning a succession planning process often finds itself consigned to bottom of a long ‘to do’ list. However, this approach wouldn’t be in the best interests of the business or any individuals involved in it. The time to act is now.
