A Succession Plan is a formal document detailing the exit from your business as you prepare for that next stage of life. It will help you find the right strategy for selling your business to someone else, transferring it over, or winding it down.
Planning for the succession of your business can be complicated, but it is also of vital importance to ensure a smooth transition and give you peace of mind.
Developing a plan often requires the input and services of various professionals, such as accountants and legal counsellors, and internal stakeholders in the business, such as key managers and employees, family members, and successor(s), if already chosen.
There are different types of succession plan to consider, each with their own legal and financial implications:
- Passing your business to a successor (i.e., family member)
One of the key benefits of naming a successor is the opportunity to keep the business in the family and protect the core values your business was founded on.
- Transferring ownership to an employee or management team
Naming a trusted employee or group of qualified individuals as successors has the benefit of ensuring your business continues to run smoothly and well-managed when you decide to retire or take on new endeavors.
- Selling your business to a third party
It can feel difficult and more than a little intimidating when considering the sale of your business, especially for those in a unique niche market, but if your financials and prospects are positive, and there’s growth potential, there is absolutely a buyer out there.
You can read more about the different exit options in our article Exit Options: selling to family, management buy-out, and selling to a third party.
Why do I need a succession plan?
Deciding to move on from your business can be a very emotional decision – you naturally have a strong personal attachment, and you want to see the business continue in the same successful fashion.
Having a formalized succession plan, developed in partnership with your professional advisors, can help you work through the strong feelings, put the business first, and create the path to a smooth transition.
A well-designed succession plan will help you:
- Ensure the future financial stability and value of your business
- Reduce the potential tax liabilities of transferring the ownership
- Set a timetable for transfer of ownership to your successor, whether a family member, employee, or an outside purchaser
- Contribute to the growth of the business in terms of market share, profitability, and size
- Provide stability for your employees
One of the major risks of not having a clear succession plan is the loss of continuity and stability, which can very quickly lead to the downfall of your business.
Not having a structured plan can also be the source of anxiety and uncertainty.
Learn how to build your succession plan with our article Building a Succession Plan.
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