Succession Planning for SMEs and Family Businesses

Ensuring that your succession plan is up-to-date and effective is important for the long-term success and sustainability of your business. There are several ways you can do this:

• Seek professional advice

This is highly beneficial in ensuring your plan is up-to-date and effective as a solicitor can offer valuable guidance around legalities while an accountant or financial advisor can assist in focusing on the financial requirements, and working together they can both identify challenges and issues, and provide advice on how to address them.

• Regularly reviewing and updating your plan

  This mitigates changes in business circumstances and allows you to make amendments efficiently. This could involve re-evaluating successors, revising legal documents, and adjusting structures.

• Communicating changes to stakeholders

  It’s important that any changes are communicated to stakeholders, including family, business partners and successors. This supports a well-managed transition.

• Consider external factors

  External factors, such as industry or economic changes, can lead to a change in your business’ circumstances and how effective your existing succession plan is. It’s helpful to update and adjust your succession plan accordingly.

• Continuously develop successors

  In addition to identifying a successor in your plan, it’s important to continually develop and mentor them to ensure they are ready to take on your business and the transition process is smooth.

By regularly reviewing and updating your plan, you can ensure that it remains up-to-date and effective, and your business is futureproofed for long-term success.

Yes, it is possible to include non-family members in your succession plan. This may include existing co-owners, or key employees who possess valuable skills and experience that would make them excellent leadership candidates within your business.

When deciding on non-family members for your succession plan, it is important to consider their level of experience, skills, and knowledge of your business. You should ensure that they share your vision and values, and that they are equally committed to the long-term success of the business. When considering the arrangements with co-owners, you must also consider what their exit plans are and try to cater for unexpected changes such as one or other of you suffering an unexpected illness resulting in a change of priorities.

Working with a solicitor can be helpful in identifying potential strategies and drawing up a suitable will, letter of wishes, shareholders agreement, partnership agreement, share options and other agreements to regulate and facilitate the plan.

Ultimately, the form of your succession plan is a decision that should be based on the unique needs and goals of your business.

Yes, selling your business can be a viable option for succession planning, particularly if you do not have family members or an existing management team who could take over the business. Selling your business can also provide a way to maximise its value and ensure a fair price.

When considering selling your business as part of your plan, it's important to consult with a solicitor who can provide guidance on the legal considerations, assisting you in addressing the buyer’s enquiries and negotiating the legal terms of the sale.

In some cases, it may be possible to structure a sale to a family member or key employee through a share option or share sale agreement or other ownership transfer arrangement.

Ultimately, the decision to sell your business should be aligned with the unique circumstances of your business and your objectives. Working with a solicitor can help you to evaluate your options and develop a plan, while also ensuring these objectives are met.

The time it takes to create a succession plan varies depending on a variety of factors, including the:

• size and complexity of your business

• number of stakeholders involved

• specific goals and objectives of the plan

It is recommended that you begin succession planning in advance to ensure there is enough time to develop an effective plan.

Creating a succession plan involves a number of steps, which may include:

• identifying potential successors

• assessing the strengths and weaknesses of each option

• developing a training and development plan for the chosen successor

• establishing a timeline for the transition of leadership

• restructuring the business in advance of a potential sale or other transfer of ownership

Working with a solicitor and other professional advisors can help streamline the process and ensure that your plan is effective.

Valuing your business is an important part of succession planning because it helps you determine its worth and the potential value of your ownership stake, which in turn can have a bearing on the overall structure of your will or how a paid for transfer of ownership is to be structured.

This is a specialist area and you should consult with a professional business valuer or accountant experienced in business valuations. They will need to take into consideration a number of factors including the business’ source of revenue, market share, profitability, dependence on the skills of the current owners or managers, scope for efficiencies, and longer term viability of the market place.

It's important to note that valuing a business is a complex process that requires expertise and experience. At Nash & Co we are happy to work with your preferred business valuation expert and provide our assistance with the valuation process.

Succession planning involves a range of legal and financial considerations that business owners should consider, including:

• legal structure of the business, both leading to and following the change of ownership

• tax implications

• estate planning

• employee considerations

• affects on existing contracts and other trading agreements

• risks of sudden illness or premature death

• insurance

• valuation of the business

• financing of the change of ownership

There are many considerations to make throughout the process, which can be supported by a solicitor and other professionals who can provide guidance and assistance.