Suc­ces­sion plan­ning could be the best Christ­mas gift for a busi­ness

Belfast Telegraph - Business Telegraph - - Platform -

No doubt the iphone X, Nin­tendo Switch and Lego sets will be on many kids’ Santa lists this year. A more gen­er­ous gift which you could be con­sid­er­ing giv­ing them might be the fam­ily busi­ness.

But with­out the right plan­ning, it could be a very costly af­fair to fail to have the right suc­ces­sion plan in place. It is well doc­u­mented that only about a third of fam­ily busi­nesses are suc­cess­fully trans­ferred to the sec­ond gen­er­a­tion and that fig­ure goes down to 10% for third gen­er­a­tion busi­nesses.

Pass­ing the busi­ness down to the next gen­er­a­tion is com­monly re­ferred to as suc­ces­sion plan­ning and it’s never too early to pre­pare for this.

Suc­ces­sion plan­ning is ef­fec­tively en­sur­ing lead­er­ship suc­ces­sion, en­sur­ing there is a ca­pa­ble man­age­ment team in place to con­tinue the growth of the busi­ness, as well as own­er­ship suc­ces­sion, en­abling own­ers to ex­tract value from the busi­ness on their exit.

So, how do you start a suc­ces­sion plan? First and fore­most, the owner-man­ager needs to un­der­stand what they want to achieve in the com­pany. Pre­par­ing a busi­ness plan gives the com­pany a clear path for growth.

The next step is look­ing at the right tools to en­able the com­pany in achiev­ing those goals. It’s look- ing at is­sues in­clud­ing pro­duc­tion lines, stock man­age­ment, cash flow ar­range­ments and fi­nanc­ing and en­sur­ing they are fit for pur­pose. It’s also con­sid­er­ing the pro­cesses in place and see­ing how they can be im­proved.

Drilling down into more de­tail, mak­ing the busi­ness more valu­able and ready for an owner exit means de­liv­er­ing on good cor­po­rate gov­er­nance.

Reg­u­lar min­uted board meet­ings mean there is clar­ity on de­ci­sion-mak­ing. Doc­u­ment­ing busi­ness pro­cesses so they don’t ex­ist only in the ex­it­ing owner’s mind pro­vide cer­tainty to the man­age­ment team.

We of­ten deal with sev­eral share­holder dis­putes and their var­i­ous roles can be con­fused. As an owner-man­ager there are sev­eral hats to wear — share­holder, di­rec­tor and em­ployee.

As em­ployee, you need to ful­fil your role and re­spon­si­bil­i­ties, as di­rec­tor, you must act in the best in­ter­ests of the com­pany and ad­here to di­rec­tor du­ties and as share­holder, fo­cus is on max­imis­ing the value of your shares.

Doc­u­ment­ing the de­ci­sion-mak­ing process and the var­i­ous roles in a share­hold­ers’ agree­ment and em­ploy­ment con­tracts for the man­age­ment team helps en­sure the right de­ci­sions are made for the com­pany.

A share­hold­ers’ agree­ment can pro­vide the clear route to exit for the owner-man­ager and em­ploy- ment con­tracts can be a use­ful tool to both in­cen­tivise man­age­ment (ben­e­fits, pen­sions and bonuses) and pro­vide com­pany pro­tec­tions (non-com­pete clause and IP pro­tec­tion).

Other in­cen­tivi­sa­tion tools can be used such as op­tions over shares, giv­ing man­age­ment a stake in the busi­ness and kick-start­ing the exit of the owner.

To have the right man­age­ment team, you need the right skills bal­ance, and it is al­ways best to con­sider where fam­ily mem­bers are best suited, but there may be gaps and there­fore the need for ex­ter­nal ex­per­tise.

This can en­sure a suc­cess­ful man­age­ment team is in place, of­fer a third-party view of the fam­ily busi­ness, but also pro­vide an op­tion for po­ten­tial sale by way of man­age­ment buy­out.

As the new year dawns it is worth hav­ing a look at how your busi­ness can ben­e­fit from a clear suc­ces­sion plan.

Fam­ily plan­ning: James Mur­doch suc­ceeded his ty­coon fa­ther Ru­pert (left) as CEO of me­dia gi­ant 21st Century Fox in 2015

By­cia­r­ala­gan, Cor­po­ratepart­ner, Tughans @tughan­s_news

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