Succession planning is just the boring word that lawyers use for the much more exciting tech entrepreneur buzz word “EXIT”.
If you’re already thinking “this doesn’t apply to me” and reaching for the “back” button, stop right there.
Succession planning is for everyone who runs a business, full stop. Not just tech entrepreneurs looking for that billion-dollar buyout, or generations old family businesses getting ready to pass the baton, EVERYONE.
So, what’s involved? I’m glad you asked. There are a few steps:
The End Goal
If you haven’t already done so, now is the time to really nut out your vision.
You need to decide:
- how long do you plan on running the business yourself?
- do you want to expand overseas?
- are you looking to take on investors?
- are you going to sell?
- are you going to go public?
- are you planning on “handing down” the business to anyone?
- when do you want to retire? What does retirement look like to you?
Of course, you might change your mind about your answers in the future, but you need to at least think about them up front rather than let them sneak up on you.
Get everyone on the same page
Many people go into business with others. It’s nice – peer support, shoulder to cry on, another brain to bounce ideas around with. You already know you need a partnership agreement or shareholders’ agreement in place to manage your relationship, but have you considered your joint exit strategy?
It’s absolutely critical that all partners in a business talk openly and honestly about their plans for the future. You need to be on the same page about where you’re heading. For example, if one partner wants to go public in 5 years and the other is planning on retiring in 4, how is that going to work? Don’t let yourself find out in 3.5 – have the talk today.
If you’ve got a team around you, share your plan with them. Ok, they don’t need to know all the nitty-gritty details, but an open and honest discussion about the direction the business is heading in is key to employee satisfaction and, ultimately, retention.
Make a plan
Once you know your goal and everyone is on the same page, figure out how you’re going to get there. Do you need a business succession plan to help you prepare to hand your business over?
Do you need to know the steps to taking your company public and selling shares on the stock exchange?
Do you need to put things in place to build value for sale? Don’t be afraid to ask for additional help, like professional legal, tax or business advice.
Reconsider your business structure
You need to work out if your business structure is the right one for your succession plan. For example, if you’re currently a sole trader but want to go public, there’s going to be a big shift in structure there. You need to start learning about what you need to do, stat.
It may be the case that your business structure is just right for right now, but it’ll need to evolve as the business grows and moves towards the end goal (in fact, I dare say this will be the case with most businesses). If that’s you, don’t put the cart before the horse, but at least know where you’re headed and prepare and budget for changes, so that you can take action when the time comes.
There could be tax consequences of a change in business structure, so make sure you speak to your tax advisor about what they might be.
Think about your involvement
Often when an exit happens, the founder will be required to stay on for a while to oversee the transition. The better prepared you are, the less time you’ll need to hang around for. We’ll talk about the steps you need to take to do so in the next section.
On the other hand, maybe you like the idea of sticking around? Maybe you’d like to enjoy working in your business again, rather than on it, and picking up a steady pay check while you’re at it? Again, think about it and make a note of what your dream scenario is, then figure out how to achieve it.
Skills and knowledge transfer
If all the skills and knowledge you need to run your business are stuck in your head, how much does that make your business worth to a buyer? Nought. Zero. Zilch. Ouch!
Even to investors, the risk involved in all the critical know-how being tied up in your one risky, susceptible brain is enormous – you won’t be getting an offer from the Shark Tank for that one, I’ll tell you that for free!
Make sure you have systems and processes in place in your business for proper transfer and retention of skills and knowledge. This is important once you’ve got a team as well – you need to make sure your business is properly prepared to maintain and continually improve the skills of your staff. If the value is tied to your original team, you’re looking at an immediate reduction in value.
This is also critical in case you get hit by a bus (eep!) If something were to happen to you, you’d need to have arrangements in place that would allow your business to run without you (or at least be saleable without you).
Insurance
Speaking of getting hit by a bus, insurance is one of the best things you can do to protect yourself, your family and your business.
Talk to a broker about life insurance, income protection insurance, total and permanent disability insurance, business interruption insurance and key person insurance. Each of these addresses a major risk your business or family will face if something were to happen to you.
Oh, and don’t forget cyber insurance! I don’t care if you’re not an online business – if you’re doing business today with the help of anything more than a quill and abacus, you need cyber insurance.
Personal affairs
Apologies for the morbid journey we seem to be taking together, but we need to talk about getting your affairs in order. It’s just as, if not more, important for business owners to have their personal affairs in order, just in case something happens to them. And I’m not just talking about your passing – what if you lose your mental capacity? Who would run your business then? Who could sell it? All difficult questions that you don’t want anyone to have to ask.
The key documents you need in place are:
This sets out who your property goes to when you die. You can also specify who will look after your kids and whether you want to be buried or cremated (or, like me, you might want to be buried with a bell on a hilltop for a) freaking people out as they walk by and/or b) acting as a fail-safe in case you accidentally get buried alive). For anything else (for example, how you’d like your guardian to raise your children), you can leave a letter of intent with your will to guide them.
This sets out who can deal with your property and finances while you’re still alive. There are 2 types-
- General power of attorney
Good if you still have capacity but need someone else to act on your behalf if you can’t, for example, if you need someone to sign a sale contract while you’re overseas - Enduring power of attorney
Essential for if you lose mental capacity and can no longer make decisions yourself.
This appoints a person to make decisions about your health and lifestyle if you can no longer make those decisions for yourself (for example, where you’ll live if you develop dementia)
Failure to have these documents in place means you’ll have no control over how your estate passes, who will get the benefit of it or who’ll make key decisions for you, you or your estate may pay unnecessary additional tax and other cost and decisions will have to be made very slowly.
If you leave it until something happens, it’s already too late. Apart from anything else, passing these issues on to your family to have to deal with can be really messy if you haven’t given it any thought in advance.
If you own or direct a business, it’s essential to have your power of attorney in place. If something were to happen to you and you didn’t have an attorney in place, the business would go into limbo while arrangements were made (if they could be made at all – most people don’t have funds just lying around for lawyers and court applications).
The business would likely whither without your continued involvement or someone else appropriately qualified at the helm. Your next of kin might decide to shut the business down. Even if you were able to come back, or if you wanted to sell the business, there might be nothing left. Not a risk you want to take with your life’s work!
Pulling it all together
Make it easy for someone to step into your shoes. Don’t be one of those business owners with overflowing shoeboxes of receipts, dusty and disorganised filing cabinets and passwords on post-it notes all over a messy desk.
Treat your business like the asset it is. Would you like a piece of property go to rack and ruin? Not likely. So, treat your business with the same respect.
Make sure you have all your legal and personal ducks in a row. Find the right team to help you – a lawyer, accountant, tax advisor, business advisor, broker and so on. Know who all the partners and key players are and make sure you’ve got your relationship sorted. Know your business structure inside and out.
Get the right insurance. Know the path you’re on. Have key information and documents somewhere they can be accessed in case of emergency. Put in place and maintain systems, including for knowledge retention and transfer. Get your personal affairs in order. And then get to work.
