Succession planning, otherwise known as creating an ‘exit strategy’ is both an important and beneficial planning tool for anyone owning their own business. However, for a family-owned and operated business, there are even more considerations than normal; as instead of setting your business up for a new owner to take over, the plan may be to gradually pass on your business to a family member(s), hand the reigns over entirely or enter into another agreement which sees you still play an active, although reduced role in the day-to-day operations. Add the fact that you’re working with family – and I’m sure you can understand that the process can become quite complicated and often emotional.
Regardless of the type of succession plan created, it is vital that the new owner can assume ownership of the business, with all main functions and responsibilities covered. Operations should continue as normal, with little to no disruption of the business activities during the transition process.
When creating a succession plan for your family business, some questions to consider include:
- Have you developed a strategic plan for the business which incorporates succession planning? Where is the business headed? How can it continue along this growth path?
- Have you visualised what the ‘end’ looks like for your family business? E.g. succession by the next generation, to sell your business to an unrelated third-party or an initial public offer?
- Have you considered a strategy for ‘professionalised’ management of your family business?
- Have you established procedures to determine issues relating to the family and the family business?
- Have you established policies relative to the employment of family members?
- Have you established policies regarding the remuneration to be paid to family members?
- Have you benchmarked the family business’ performance against other similar businesses?
- Have you established policies and procedures that would enable the family business to employ external executives, including an external CEO if necessary?
- Have you established policies and procedures for the family to appoint both an internal and possible external board of directors?
A strategic plan includes strategies to assist in the development of family businesses and protocols
related to a family constitution, succession plan and the appointment of a Family Council (if any).
The size of your business will dictate which of the above elements may be required and whether you should consider how you sell your business on the open market, if that is your goal.
Whether you wish the business to remain in the hands of the next family generation or prepare for the sale of your business sometime in the future, a comprehensive succession plan will strengthen the business for either possibility.
When it comes to mixing business and family, the process can sometimes become complicated. It is more important than ever to determine clear, concise strategies for achieving your business goals prior to, during and after the succession plan takes effect.
For more information on what you should include in your family business succession plan, or to speak to an experienced family business Broker, contact Core Business Brokers today, on (02) 9413 2977. When it comes to your business sale, we know what we’re doing, right to the core!