Father-Son-Succession-Plan

Legal,Trusts, Wills & Estates

The Importance of a Strong Succession Plan

23 Sep , 2014  

Nikhil (Nik) Sreedhar
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Nikhil (Nik) Sreedhar

Founder at ProAdviser
Nikhil's dream job is to be an exotic car salesman. His favourite colour is orange and it shows as he is the 23 year old entrepreneur behind ProAdviser. You should follow him, he gets lonely.
Nikhil (Nik) Sreedhar
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The coach of a 4 x 400 relay team creates a strategy for how each leg of the race will be run and how the baton will be passed. A business succession plan is a strategy for how you will transfer ownership and control of the business (the baton) to your successors.

Many businesses have no succession plan in place or an existing plan is woefully inadequate.  This may be because of an owner’s reluctance to relinquish control.  Letting go of the business might seem like losing an integral of your identity or self-worth.  Retirement can look like a void, without purpose or shape.

But for the well-being of the company, its people, and its clients or customers, it is essential to have a well-developed succession plan in place. It is equally important that the plan be regularly reviewed and updated.

Plan Early

Succession planning should begin almost the moment the company is formed.  This will be the roadmap for how the business will be run, if and when, you or a partner moves on to another opportunity, retires, is incapacitated, or passes away.  Without a succession plan, the continuation of business could become chaotic or impossible.

Elements of the Succession Plan

The plan should clearly identify what is to happen to the company’s assets, who will receive ownership/control, as well as all the financial, legal and operational steps related to your exit from the business.

Legal: Change of legal structure, terms of succession, change/transfer of registrations, licences and permits.

Operational: Departure date, retention of any operational role, successor’s responsibilities, mentoring of the successor, employee contracts and work agreements, condition of assets, and intellectual properties.

Financial: Will the business be gifted or sold to successor(s), current market value of the business (including your share of it), financial and tax implications of succession, the income you need in order to retire or leave the business.

Timing: Assessment of when is the right time to sell or transfer power.

Identify the Milestones

A succession plan takes place over an extended period of time and the steps involved can be milestones marking the accomplishment of each phase of succession.  These steps should be included:

  • Identify a successor –a transfer within the family, an inheritance, or selection of someone from within (or outside) the business
  • Training/mentoring the successor
  • Transfer of responsibilities in stages
  • Transfer of power

The Bigger Plan

  • A strategic business plan goes hand-in-hand with a succession plan. There should be an ongoing strategic plan to solidify and increase the viability and market value of your company.
  • Goals for transition are part of the succession plan, too. What is the transition to be; an inheritance or a sale to successors or outsiders? Who would be qualified and desirable buyers for the company, and what would be the optimal time to sell or transfer power?
  • Know your business, the people and their roles. Each position should be well-defined in terms of responsibilities and procedures.  It should be possible for another person to step into a different position and quickly handle those responsibilities. At all levels, the business should be able to continue in successful operation no matter who is ill, on vacation or departs.
  • Ensure that your personal matters are in clearly defined order including an up-to-date will (with an executor named), power of attorney, medical power-of-attorney, and detailed documentation of your end-of-life wishes.  You also should have documents that detail what should happen, who should be notified, where all pertinent documents can be found.  

Without a succession plan, everything about your business may be in jeopardy. Your heirs also could be adversely affected by your lack of planning.

You built a business with courage and pride. You want it to be in healthy condition as you leave it, and you want to entrust it to those who will ensure its continuing success long into the future.

It is never too early to develop a succession plan and put your business and personal affairs in order. Contact the financial and legal specialists at ProAdviser.com.au for assistance. They will be happy to help you with your plans.

 

 

By Nikhil Sreedhar
Nikhil - Profile PicNikhil is the CEO of ProAdviser. He is an experienced financial services professional with a particular interest investing in small businesses, shares and property.  ProAdviser is a specialist professional adviser marketplace that connects consumers to leading financial planners, broker, accountants and lawyers. It is completely automated, efficient and highly effective. To get started simply click on “Ask An Adviser”  

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