Hands up those who want to think about ill health, financial trouble or having to end their involvement with the business that they love!  If you think succession planning is all about these gloomy things, you’re unfortunately right!  But there is a silver lining behind the grey cloud.  Succession planning is empowering.  When done correctly it will provide you with the means to reap the rewards of all your hard work. 

Succession – you’ve probably heard of it before and have possibly been told by your accountant or other professional advisor about planning for it, but have you actually done it?  For many busy business people the answer is usually “NO”.

The Meaning

There’s no hiding the word “success” in “succession”.  Why is this significant?  Put simply, succession is “the successful exit from your business”.  What does “success” mean in this context?  We think of it in terms of being able to exit on your own terms.  This is incredibly important after you’ve expended huge amounts of time and energy, and no doubt money, on the development of your business.

The Reluctance

It is an exit strategy, and so it is the next logical step after successfully navigating the business through the various stages of its life-cycle including start-up, development and growth.  However despite planning for all of the front-end business steps, more often than not, business owners do not consider succession.  This is probably for a number of reasons:  

  • A natural reluctance to think about planning for retirement, death, etc;
  • An inbuilt reluctance to let go of something you have built up and nurtured by handing it over to someone else;
  • A failure to recognise the true value locked up in the business and how to realise that value, focusing instead on annual cash flow;
  • Insufficient time to look at what succession really means and how to go about planning for it.

Despite these reasons, it is inevitable that there will come a time when you will want or need to leave your business for good.  Circumstances can change quickly and something might force you to exit the business, for example burn-out, financial difficulties, ill-health, or even death.

Planning succession early allows even a forced exit to be on your own terms.

The Plan

There is no perfect template or model for a succession plan, because each plan will vary.  Having said this, there are three basic steps to creating a succession plan: 

  • Step 1:  evaluate the business assets;
  • Step 2:  evaluate the management of the business; and
  • Step 3:  collate the information from Steps 1 and 2 into a written plan.

The Review

A crucial part of ensuring the “success” of your succession plan is to subject it to constant review.  This is so you can update it, if necessary, to reflect both the currency of the forecast assumptions and also changes in the wider market.

Your plan should also be reviewed if something unexpected happens, such as relationship upheaval (personal or business) or the loss of a key customer or supplier, or if your own succession objectives change.

The End

Succession is generally all about ending your involvement in your business.  As a result it is very focused on what you are going to end up with.  It makes sense then to think, as early as possible in the life of your business, about what you want out of your business.