Last month we took a look at the management buy-out option for exiting your business. This month, we’re investigating how hard it can be to let go and pass your business on to a new generation or business partner.
We know that starting a new business is a huge commitment – financially and emotionally – and the hard work involved in making a success of the business through difficult times can take its toll on the owner. When it’s time to think about exiting the business, effective succession planning is essential, but it can be very hard to allow the next generation to take on the leadership and improve your legacy.
Successful succession planning
Preparation is everything in order to protect and build on all the hard work that you have put into the business over the years. Succession planning is the decision-making process for who will take over in a smooth and stress-free way. The key benefits of succession planning are:
- Being prepared for every eventuality
- Being clear on your exit strategy
- Making the process as clean and easy as possible
- Having confidence in the next generation of leadership
- Reassurance that your business will continue to grow
Choosing your successor
If you run a family business, it’s likely that your child or children will be taking over when you step back but the ideal candidate could also be a business partner or trusted, long-standing employee. Who can best fill your shoes?
- Someone with extensive experience and knowledge of the business
- Someone with an interest in growing the business
- Someone with the right skills and qualifications (especially in a technical industry)
- Someone who shares the company’s vision and values
- Someone with strong customer relationships
Transferring ownership of your business can be a lengthy process, another reason to start planning early. To share ownership of a limited company between multiple children requires a shareholder’s agreement to avoid possible conflict in the future. If you are going to retain a stake in the business, this should also be securely documented.
Timeline for change
Many factors need to be considered for a smooth transition, such as a business valuation and informing shareholders and employees. Shareholders will need to know how their investment will be affected and in the case of a change of ownership, employees will need to be advised of a TUPE (Transfer of Undertakings Protection of Employment) agreement to maintain their existing terms and conditions.
There may be tax implications when you transfer ownership of the business, for example if you stay on in an executive capacity your tax situation may change from self-employed to employee. A retirement situation and the business’ VAT registration also need consideration. It would be worth seeking the guidance of a tax expert to help you find the clearest path.
It is important to think ahead, speak to others who have been through a similar situation to find out what worked for them and explore all the options available to you, whether that’s leadership succession or ownership succession. For friendly, approachable advice, try the experts at CRM Oxford on 01865 379272.