Why Succession Planning is Important for your Business
There has been lots of talk about succession planning in business circles for some time now, but what is it? Why is it important?
What is succession planning?
Many people believe it’s just all about handing over the family enterprise to their kids. In reality it’s much, much more than that. Business succession and exit planning is actually about combining the business, financial and personal goals business owners to design and implement a strategic exit. It involves building a plan around the future of the enterprise, a personal financial plan for both the owners and their successors if they are family members, and also addressing the issue of your personal goals. We need to address the very important issues of how and who will run the business into the future. As a separate issue what will happen in relation to land ownership and when?
Everyone needs a personal financial plan, particularly the current owners working towards retirement age. Consider the following illustration that shows the number of people turning 65 every week in this country both currently and in the years ahead. Couple this with the statistic that 40% of employers have no succession plan in place.
Where family businesses are concerned, they need to have a succession plan that is agreed by all the relevant stakeholders and clearly communicated. This process is not always easy but it’s vital that it is addressed. There is too much at stake, not only in terms of assets and businesses, but perhaps even more importantly, ongoing family relationships.
Imagine for a second. You have worked hard in their businesses for most of your life, building it into something worthwhile that provides for their families. Justifiably, you’re very proud of what you’ve achieved. Going forward however, our clients often struggle with both managing family relationships and planning a future for themselves beyond their current role. This is particularly problem in male baby boomers.
The thought of not being in your current role can indeed be quite scary. The consequence is that no real action is taken; the whole issue continues to remain in the “too hard basket”. That is, until there is a catalyst to instigate action. That might be a significant health scare or some form of family conflict or a divorce. Even though the process of developing a succession plan might not be easy it is usually well worth the effort. Many family relationships and indeed businesses as well, have been destroyed as a result of not taking action in this area. Letting the kids fight over the spoils after we are gone is not the answer.