How far in advance should I start planning to pass my business on?

It is a sad fact that many businesses have no succession plans in place and simply believe that the business will be able to sort itself out in the event of the ill health or the death of the sole trader or one of the business partners. This really isn't the case and even if it is a family run business that you are simply passing onto your children it is important to start to plan early.

A good succession plan will take at least a year and can take longer if there are difficult family or working relationships to navigate. A good succession plan will look to derive all of the value of the business and enable you to either release this to enable you to have capital on which to rely or to have this invested in the business to produce you an income on which to live.

Succession planning is also about to whom do you pass the reins. If you have built the business from the ground up there is a very emotional relationship and to whom do you entrust your life's work? Is it your children, your spouse, your business partner, your employees or is it your Executors and Trustees? This is often the sticking point for people in planning. You need to consider who is best placed to continue on and drive your business.

Ideally this would be your family or your business partner but sometimes people do not want or need these responsibilities. It is therefore really important to start to have these honest and open conversations with your successors at least three years in advance of your proposed retirement from the business. This gives your successors the opportunity to plan and to ensure that they have the time, skills and money required to carry on your business.

Planning this early also allows you to come up with a plan B in case your successors do not feel able to succeed you. You can then look at alternatives such as a sale of the business as a going concern or a management buyout.

Before your plan goes into action it is important that you consider how to get your business in the best possible shape to succeed. This means looking not only at the business itself but also any processes and policies you have and the people who will be left to manage and implement those. You need people who are competent and will look to continue to build and grow your business.

As always take advice on your succession plans. You will need to speak with both legal and financial advisors who will be able to guide you through each and every consideration in your plan. It may be the case that you need to set up certain legal agreements and consider the taxation aspect of your departure from the business. A well-rounded legal advisor will be able to take you through your options and give you the tools to make a fully informed decision.

This process isn't just about the future of the business though, it is about the future of you. You therefore need to ensure that you get enough from the business financially. This may be a consideration as to whether you take your capital or leave your capital invested to produce an income. This is something that needs expert advice as this can affect your tax position.

The importance of succession planning therefore cannot be over emphasised. You need to start to plan as early as possible and get the wheels in motion at least a year before your proposed departure from the business. With open and honest discussions with your successors and your legal advisors you will be able to transition out of your business knowing that you have done so at the best time for you and leaving that business in the best position to grow and continue on in success.

Contact us today on 0161 696 6238 to see how we can assist you with succession planning.