Succession Planning: A will for your business
The unfortunate reality is most business owners don’t take proper holidays. Usually this is because their business relies on them and they don’t have the support to keep the business running without them.
As a business owner, have you ever considered what would happen to the business if you had to take a six months break because of a serious illness or injury?
Would the business survive? How would the bills get paid? And while it might not be nice to think about, if you were to die, are you sure your business partners would give your loved ones a fair deal? For these reasons, and many more, it’s important for all business owners to have a detailed succession plan. A succession plan is like a will, but for a business. Although there are often a wider range of scenarios and options to consider.
Just like your will, a good business succession plan can vary from one business to the next. But there are some key areas that should always be considered, which you can find below.
In the event of death or retirement, the ownership and control of the business may need to be transferred to the owner’s family or to the surviving business partners. How easily this occurs will often depend on how the business operates, such as through a trust, or a company, or without a separate entity at all.
If something happened to one of the business partners, would their spouse or children take over the control of that share of the business? If the answer is no, then a succession agreement can assist the other business partners to continue business operations whilst allowing for compensation for the former partner’s family.
Just like personal insurance, business insurance can provide a range of protection such as temporarily meeting the normal costs of running the business (business expenses cover) or paying for a short-term replacement manager (eg. trauma or disability cover). A life insurance policy linked to the succession agreement that provides the deceased partner’s family with suitable compensation for the transfer of business ownership to the surviving partners may also be a good idea.
Powers of Attorney
Most small businesses struggle to do much without the advice and authority of the figurehead or main key decision-maker. That’s why a Power of Attorney is integral to a good succession planning process. It helps the business to physically operate if the owner is incapacitated because of illness or injury.
There is a range of people who may need to be involved in setting up a succession plan, including a financial adviser, lawyer and accountant. Even if you have a plan in place already, it is important to review agreements and insurance policies so they’re up to date and reflect the current value of the business.