6 succession planning tips for small businesses

Business succession planning

Family run businesses are everywhere – from plumbing and electrical specialists to automotive dealers and accountancy firms. They’re an essential part of the British marketplace and long may they continue. But business continuation can prove a problem for many. Business succession planning is critical.

Indeed, some 58 percent of the UK’s family-run organisations don’t have an adequate business succession planning strategy in place.

Even if you’re simply passing your business on to your children, it’s important to know how to unlock its value. After all, you’ve worked hard building it up for many years – you deserve to benefit as much as possible.

Here are our top tips for succession planning, so you can include them in your considerations when approaching retirement.

1. Start to plan really early

Formulating a succession plan can take up to a year and implementing it can take several more. There may be emotionally delicate issues to face, such as whether it’s best to leave your life’s work in the hands of a relative or long-term employee. It may be necessary to consider several successors before appointing one.

A succession planning strategy should be devised at least three years before you intend to retire so there’s plenty of time to iron out any issues and hand over the reins. If you find that you don’t have a suitable successor, you may decide to seek a buyer, which also takes time.

2. Accept that keeping your business in the family can be tough

A handover to your children may seem like the easiest route to succession but it’s often not that simple.

Perhaps your kids won’t have the experience needed to run a company by the time you retire; perhaps they have their own hopes and dreams that don’t include taking the reins of your carefully built legacy.

Having an early, honest conversation with those you wish to succeed you is important so that you don’t pin your intentions on someone who has other goals or who lacks the experience to continue your work. It also means you can explore other options, such as a sale or management buyout in plenty of time.

3. Begin to step back before the end

Always assuming you have a rough idea of when you want to retire several years before you actually do so, you can start preparing by beginning to withdraw from the day-to-day operations of your business.

You need to incorporate processes and a dynamic that is going to stand the test of time and operate long after you’ve hung up your jacket and headed off into the sunset.

The best way to achieve this is by phasing out your involvement.

Choose management staff and directors carefully, ensuring they’re competent at delivering the decisions and results that will ensure the continued success of the organisation.

4. Find good advisors to help you with your business succession planning

Following all the small business succession planning best practices in the book will only get you so far if you don’t have competent advisors.

Preparing for the future of your business is complex and you will often require legal and financial help to help you to reach the best decisions and implement the right processes.

Don’t just settle for the cheapest advisors – look for those with experience in business succession planning, who can ask the right questions and maintain an objective view of the situation.

You’ll need to consider issues around estate planning, taxes and company finances, so opting for an accountancy firm with specialists in all of these areas could be beneficial, as you can get help with various aspects from a single source.

Choose people you can build a relationship with to make the whole process smoother. If you’re frequently disagreeing or butting heads, it’ll get in the way of progress towards your desired outcome.

5. Evaluate your own situation

Your succession plan shouldn’t only be about the future of your business.

Remember to consider your own position when you are considering the best way to move forward.

Do you have sufficient retirement savings to enable you to live comfortably? Will your life insurance policy still be relevant and valid after the change in your circumstances?

Ensuring that you are properly prepared for your own future can help you to negotiate a sale that works for you so you can leave the organisation at the optimum time.

6. Be open about your plans

Keeping your succession plans a secret from everyone else in the company isn’t going to benefit anyone.

If the time for you to retire is drawing near, communicate your intentions to your staff as a whole – rather than just the senior management team – and also inform your clients if necessary.

Those you are intending to put in charge need to be prepared for the responsibilities they will be taking on and employees who feel the business is moving in a direction they prefer not to support must be given sufficient opportunity to move on.

Of course, being open about the plans from early on also enables you to be flexible and adapt if the goal posts move over the years. Tax liabilities may change, key employees may leave – you’ll need to be able to deal with all these eventualities and more.

Help with business succession planning

This business succession planning blog covers some of the key points that need considering when you’re looking to retire but it is by no means exhaustive.

Each organisation is quite different, which means each will have its own set of hurdles to overcome before the owner can step back for good.

At THP Chartered Accountants, we have dedicated business planning advisors who can help you with the financial and legal aspects of leaving your business to someone else, whether through a sale, a management buyout, or by passing it on to your children.

Contact us today for further information on how we can help, or to seek advice on your business planning strategy at one of our offices in Sutton, Chelmsford, Wanstead and Saffron Walden.