What do I need to create a succession plan?

Written by Austin Blackburn and Talek Cox | Corporate and Business Law Team | 10 July 2024

Creating a succession plan can ensure the continuity and future success of your small business, outlining how leadership transitions will occur and helping to prepare the business for a smooth changeover. This may be several years before your planned exit date.

Define Key Roles and Responsibilities

Clearly define the key roles and responsibilities within your business. Documenting these roles helps in understanding what each position entails and what qualities and skills are required to perform effectively. This clarity helps to match the right successor to the appropriate role and ensures they are fully prepared for their responsibilities.

Identify Potential Successors

Identify potential successors. These could be family members, key employees, or external candidates. Consider the skills, experience, and leadership qualities required to run your business well. It’s essential to have a clear understanding of who could potentially take over and lead the business in the future.

Assess Skills and Development Needs

Once potential successors are identified, assess their current skills and development needs. Determine the gaps in their knowledge and experience that need to be addressed to prepare them for leadership roles. Providing targeted training and development opportunities is crucial for ensuring they are ready to take over when the time comes.

Develop a Training and Mentorship Programme

A robust training and mentorship programme is vital for preparing your successors. This programme should provide them with the necessary skills, knowledge, and experience to lead the business. Mentorship can offer valuable insights and guidance, helping successors to understand the nuances of running the business.

Establish a Timeline

A timeline is essential. Establish clear milestones and deadlines for the transition process. This timeline should include key stages such as training, transfer of responsibilities, and the final handover. Having a well-defined timeline ensures that the transition is smooth and orderly, and gives your successors a target to aim for.

Create a Financial Plan

A financial plan is a critical element of a succession plan. It should address any financial implications, including the valuation of the business, potential tax liabilities, and the financial arrangements for the outgoing owner. Ensuring the business is financially prepared for the transition helps avoid disruptions and maintains financial stability.

Document the Succession Plan

Documenting the succession plan in detail is essential. This document should outline the full process, including the identification of successors, training programmes, timelines, and financial plans. Having a written plan ensures that everyone involved is on the same page and can refer to the plan as needed.

Communicate the Plan

Effective communication is key to the success of a succession plan. Share the plan with all relevant stakeholders, including employees, family members, and key partners. Open and transparent communication helps manage expectations and reduces uncertainty.

Legal Considerations

Legal considerations play a crucial role in succession planning. Ensure that the succession is consistently set up by you; this may involve updating legal documents such as wills, trusts, and shareholder agreements. Consulting with a lawyer helps to navigate complexities and ensure that your plan is compliant. Part of the process may entail bring your potential successors on board with initial shareholdings or options, but you also need to be able to unwind those arrangements if they decide to leave first or do not prove to be able to take on the roles and responsibilities as hoped.

Creating a succession plan involves careful consideration. By ensuring everything is covered and planning well in advance, you can ensure that your business is well-prepared for the future and can continue to thrive.

If you’re considering succession planning and need expert advice, our team are here to help. With years of experience, we can guide you through the process and ensure your plan is comprehensive and legally compliant. You can get in touch with them by calling 01752 827125 or emailing enquiries@nash.co.uk.