Succession Planning

Planning how their firm will carry on after they retire is something many small-business owners avoid. However, if you want to ensure the future of the business, succession planning is essential.

According to a 2005 survey from the Association of Chartered Certified Accountants (ACCA), 30 per cent of small-business closures take place because of the lack of an effective succession plan.

Owners develop an emotional attachment to their business and are reluctant to hand over responsibility. However, those who don't plan ahead risk throwing the future of their business into jeopardy.

A lack of forward thinking can create problems prematurely too; serious illness, disability or death can catch small businesses by surprise. Having an orderly ownership-transfer plan will help you avoid a leadership crisis, preserve the value of your business and provide a future for your employees.

You might consider a trade sale, winding up or a management buy-out, but many small-business owners choose to pass their business onto a family member.

If you own a small business, retirement isn't just a matter of deciding not to go into work any more. Alongside ensuring that you have enough money to retire, the question of what happens when you're no longer managing your business is paramount. You need to decide who's going to run the firm and how your ownership will be transferred.

You should be planning for succession at least two to three years before you hand over ownership. A good plan can ensure that you have the funds you need to retire and that the business continues to thrive." 

Choosing a successor

Consider your successor(s) on merit. Avoid the temptation to appoint someone because they remind you of yourself. It may be your dream to keep the business in the family, but you need to consider the commercial implications.

Your intended successor needs the right skills and attributes. It may be that no family members are capable of - or interested in - continuing the business. In this situation, you should consider whether you would be better with a trusted employee taking the reins.

Alternatively, you may need to bring in an external manager with the appropriate experience. 

Key points to plan

Your succession plan should address ownership, management and financial planning, as well as details of your retirement plans and a statement of the distribution of future ownership.You need to be mindful of the tax implications. If you are handing your business down, you may need to think about inheritance tax and capital gains tax. 

You will also need to consider employees' rights. These are protected if the business is sold or transferred. Staff cannot be dismissed unless you can prove there are good economic, technical or organisational reasons for doing so.