What To Consider During Business Succession Planning
Strategic succession planning is crucial to the successful functioning of businesses, particularly a family run or other closely held enterprise. Failing to take sufficient steps to maximise the benefits of succession planning can make a significant difference to the long-term outcomes. Changes in ownership structures and business objectives and operations can bring about substantial transfers of money and financial changes. Anticipating this can be fundamental to the preservation of the business’ financial standing and longevity.
Effective succession plans can facilitate tax reduction, growth, job satisfaction, and beneficial retirement outcomes. Running a business is complex and some elements are unpredictable. Forward planning for potential changes can make a substantial difference. At J Mishkin Law, our team can provide advice and instigate suitable succession plans personalised for your business.
What Is Succession Planning?
This type of preparation involves identifying what is essential to the successful running of your business and preparing for disruptions to these elements. One important part of this action plan is being aware of the crucial positions and skills required and organizing who would take on these roles in the event of change. Having the most suitable people working is not only something of importance to consider today, but for the future functioning of the business. When an unexpected issue comes into play, promptly fixing the situation can mean the difference between business success and business failure.
Why Is Succession Planning Important?
As competent and hardworking your staff are, and as dedicated they may be to the longevity of their role and the business, unexpected changes can arise because life is unpredictable. Owning and operating a business must involve anticipating these and having a backup plan so that if events such as an employee’s retirement or death occur, your business can recover and continue to function efficiently. This not only can benefit growth and revenue but can also encourage a smooth transition and amicable interactions within the organisation.
What Does Effective Business Succession Planning Involve?
Succession planning should be closely associated with the functioning strategy and goals of the organization and involve the executive and senior leaders so that everyone is on the same page. Important roles and competencies must be clearly defined, along with how these can be effectively maintained and understood by all staff.
The process can be broken down into different steps, which include assessment, evaluation, and development of the plan.
- Be aware of challenges and events that your business may face in the future.
- Identify the positions, knowledge, and skills that are required for the successful functioning of the organization.
- Determine which employees have high potential for success.
- Specify the competencies that individuals will require to fulfill their roles and deal with potential issues and challenges.
- Obtain required knowledge from an employee in the event of their leaving.
- Select suitable employees who can step into positions through specific development strategies.
Another element to succession planning is estate planning. When changes occur, transferring assets to the next in line promptly and smoothly removes future appreciation. This can reduce estate taxes. This may not be suitable in all situations, which is why it is important to discuss the options with us.
We can put in place strategies to transfer ownership without ceding control. This can be done by moving business interests into an option that enables the owner to transfer substantial ownership interests while retaining management control, such as a trust or family limited company. Other methods can include changing ownership in the form of non-voting stock or establishing an Employee Stock Ownership Plan.
Assessing and identifying differing interests and financial needs of staff is also crucial. Options to generate growth and revenue while minimizing burden can include an instalment sale of the business, a Grantor Retained Annuity Trust, or an Instalment Sale to an Intentionally Defective Grantor Trust. These can be complex, time-consuming processes that we can put in place for your business when deemed suitable and beneficial.
Incorporate A Strategic Succession Plan
Staff changes are inevitable and unavoidable. Planning for these occurrences is crucial to the successful functioning of a business. It is even more relevant when it comes to situations that are unexpected and need swift attention, such as if a team member dies or becomes disabled. An inability to undertake smooth transitions can cripple an organization, particularly if affected roles are of the senior or executive variety.
Many elements of a business’ succession plan are industry specific, so it important that they are individualized to incorporate relevant factors. It is also highly beneficial to revisit and update this plan regularly to identify changes or gaps and make required adjustments.
Knowing there are long term, dependable, and skilled staff with a wealth of knowledge is not enough for success because this is never guaranteed. Losing key staff members can have a huge impact, and forward planning will minimise the fallout. At J Mishkin Law, our team will assess your business and assist you in developing the correct plan for your organization. When disruptions occur, do not be caught unawares.