4 minute read
Succession Planning for the Future
In these uncertain times, succession planning is a vital consideration for any business. Here, the team at Cleaver Fulton Rankin outline the importance of having a succession plan in place, including the key steps which should be considered to ensure businesses stay ahead of the curve.
(Pictured L-R) Private Client team members including Timothy Rankin; Melissa Ruddock; Brid McColgan; Rachel Black; Michael Graham; Aisling Wogan; and Nemonie Fulton.
What is succession planning? Succession planning is the process by which current owners and managers of businesses identify and develop a plan to ensure that the transition is as seamless as possible, while ensuring both that the business legacy is secured and that the exiting owner is able to extract fair value for the time and effort put into the business over the years.
Why is a succession plan important?
The day-to-day challenges of running a business can be daunting, but none is more challenging than the realisation that eventually control of the business will have to be transferred, whether to the next generation in a family business, to a key employee in the business, or to a third party.
Traditionally, succession planning focused on ownership and senior management positions, but more often than not businesses are keeping all key roles under constant review to ensure that in a climate with constant job and skill shortages, businesses can ensure that they keep ahead of the curve.
In any event, it is important that businesses remember that in many cases ownership and management may be different, and ensuring appropriate succession planning is in place for the management team who likely run the business on a day-to-day basis, as well as the owners, will assist in securing a seamless transition when the time comes.
When should a succession plan be considered?
A succession plan should be considered as early as possible in the life cycle of any business. It should remain under regular review as part of its business plan, and be capable of being adapted as circumstances change.
1. Good Communication
Keeping the management team and, where relevant, family up to date with decision-making and future plans is vital to ensuring successful succession. Good corporate governance is important so that formal business decisions are taken appropriately and recorded accurately.
2. Business Plan
Draft a business plan which should be kept under review and updated regularly, ensuring that all key persons in management positions are aware of the contents and contribute to such plan.
3. Employment Agreements
Ensuring all persons in key roles have suitable and robust employment agreements in place. Such agreements should clearly set out roles and responsibilities, include appropriate restrictive covenants and confidentiality and intellectual property provisions.
4. Shareholders’ Agreement
Where there is more than one shareholder, draft a shareholders’ agreement as early as possible. Such an agreement can provide mechanisms via which owners can exit the business.
5. Seek professional advice
It is important to take professional advice in relation to the tax consequences of your will, particularly in light of the availability of Business Property Relief from Inheritance Tax in certain situations, as effective tax planning in your will can lead to significant tax savings on your death.
6. Reward goodemployees
Incentivise key employees to stay and grow within the business. Such incentives can take the form of competitive salary and benefits packages, performance related bonuses or the use of share option schemes. Obtain tax advice early. Good tax planning can ensure that an owner is able to maximise the value he or she is able to extract from the business on exit.
8. Invest in insurance
Key man or Cross-Option Insurance can pay out to the company or to family members in the event of critical illness or death and can provide certainty to business owners and managers at the most uncertain of times.
9. Power of Attorney
Put in place an Enduring Power of Attorney sooner rather than later, in case this is ever needed. Should an owner or director lose mental capacity without having an Enduring Power of Attorney in place, an application would need to be made to the Office of Care & Protection in the High Court to appoint a controller to deal with their property and financial matters. This is often a lengthy and costly process, during which time it may not be possible to do anything with these assets.
10. Write a Will
Having a carefully drafted, tax-efficient will is vital in terms of safeguarding your business and ensuring that your business assets pass to the individuals you choose. Wills should be reviewed regularly in conjunction with the terms of any partnership agreement, articles of association or shareholders’ agreement to ensure that your business interests can pass by your will.
