Business succession planning
Posted by Northadvisory on June 4, 2021
When you start a business, you have a vision… you have dreams about where you want to be and what you want to achieve. You spend years devoting your energy to creating a successful enterprise and that often comes with sleepless nights and stressful moments. But when you reach your goals, it is cause for incredible celebration.
There is nothing more rewarding than knowing you’ve built something from the ground up, but for many privately-owned businesses there is no plan for the future past the owner’s involvement.
Without a formal succession plan, what will happen when it comes time for you to retire or if you need to leave the business unexpectedly?
Being proactive and developing a formal business succession plan is critical to ensuring your hard work continues to be fruitful for years to come.
What is a business succession plan?
A business succession plan outlines the process for change of ownership. It helps support a smooth transition when you or one of your business partners retires or has to suddenly exit the business.
We know it can be a delicate subject to approach – discussing the inevitable can be uncomfortable – but creating a succession plan now makes it easier for you to access the equity you have within your business, while also preserving its future viability.
Every business owner will eventually leave their business, and if you want yours to continue for future generations you need to have plans for your successors. It’s best to develop those plans early so that the transfer of equity is seamless and there is a positive long-term outcome for the business.
Why do you need one?
The reason you need a succession plan is simple… without one, your business is at risk. Right now, if something happened that meant either you or a business partner had to leave, the business could lose a significant amount of the wealth you have spent years accumulating.
If a key person suffers an injury and can’t work or suddenly passes away… it’s likely that the business won’t run as profitably or function the same way.
If the business was in a period of growth and required additional capital, it could be hard to secure a bank loan, as the key person in the business is no longer involved. This could also mean your competitors push ahead of you within your market as your business becomes vulnerable.
Without a formal succession plan you expose yourself to many adverse outcomes. It could be that your family members don’t receive the full value of your business shares… or remaining business partners end up working with the spouse or a child of the departed partner, who has inherited shares in the business. The business might experience liquidity issues, or it may suffer a dramatic reduction in profitability.
Our team can help
You can avoid all these scenarios by implementing a well-considered succession plan. It can help reduce uncertainty now and also minimise the potential for conflict in the future.
As the business owner, succession planning is an important part of future proofing your business. And it also provides peace of mind for you and your family should something unforeseen occur. You always want to make sure you and your loved ones are financially secure.