This is the second in our series on succession planning focussing on businesses. In this bulletin we look at the ‘when’ and ‘who’ of succession planning.
There’s no time like the present!
Planning should start at the same time as your business; or the acquisition of any significant asset that will be part of the business.
Making sure you have the right structure to operate the business or to hold significant assets, such as land, will make it easier to later transition people in and out of the business and assist to manage any tax and duty that might otherwise arise.
You should get advice on the appropriate structure and regularly review your structure as your business grows and changes to make sure you are still best positioned to manage succession.
It will also help to start discussing your long-term plans with your children and educating them about your business as they are thinking about their own careers and futures. In this way you can start to gauge whether they are likely to want to be involved in the business and if so to what extent.
You might not need to start documenting a complicated plan, but knowing which of your children are actually interested in the business and educating them about the likelihood of this and what that might involve will be of great assistance when you want to start planning your exit from the business.
Unity is Strength: Succession Planning Needs Leadership and Communication
Succession planning where family is involved is not just about preparing a will. Particularly for family businesses, succession planning is a process of leading those close to you, to achieve a set of goals or aspirations.
Essentially succession planning is a journey. It is important to plan the journey. There will be obstacles and unknowns but without taking those first steps you will never get there.
Before looking at who gets what or the dollars and cents, it is important to have all the stakeholders engaged in the process, particularly where difficult conversations may be required. A key part of succession planning is leadership and communication.
It is important that the planning process has a leader. But that leader cannot dictate the process or content of the plan to the other parties. The process will only work if that leader leads a united team. Communication is important to make sure everyone involved feels they are part of a united team with a united goal, achieving a workable succession plan.
You need not all agree on everything, in fact that is an unrealistic expectation, but you must have rules about how you will communicate with one another to allow everyone to be heard and respected. A team where members feel like they are being listened to and understood will perform much better than one where members feel they have no say.
This is arguably the most badly handled aspect of succession planning and risks the wheels falling off the process before it even starts.
Having advisers as part of the process can assist in bringing those who are feeling marginalised back into the process. If one of the family members feel like they were not part of the plan, they will be less likely to cooperate in its implementation, and may in fact work to disrupt it.
No Individual can Win a Game by Himself: Who is Involved in Succession Planning
As already mentioned, succession planning is about teamwork and it is important that all the key stakeholders are involved in the planning process. If the business is a family business, then you must involve all the family members who have some connection, interest or expectation in relation to that business.
It is also important that all the advisors to your business are part of that team. This will include your accountant, solicitor, banker and other financial advisers. If communication is going to be a real problem, then an external facilitator might be helpful in the early stages to set the ground rules and form the team.
In our experience, succession planning without the involvement of all the business advisers is rarely successful. There is no point in arriving at a succession plan that all the parties are happy with, if the plan cannot be implemented because of legal, financial or taxation complications.
Involving advisers familiar with your business or the area and industry in which your business operates is also of great assistance. A succession plan relying on the transfer of, or access to, important assets, for example water rights, will be of little use if the local regulatory framework does not allow that transfer or access.
If you would like to discuss any of the issues raised in our succession planning bulletin please contact us.
In our next bulletin, we will look at what is involved in the succession planning process.
Click here to read Part 1 of ‘Our Succession Planning Bulletin Series’.