Owen White & Catlin

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Are you ready to hand over your business to the next generation?

Entrepreneurs can be very confident about how to build up a business but then become surprisingly unsure about how to hand it over to the next generation.

This can lead to problems because there are several issues to consider. For example, will family members be able to take over… will you need to hand over to partners or work colleagues…will you need to sell to an outside company?

There are numerous options presenting different advantages and disadvantages depending on your circumstances.

It can be a surprisingly difficult task for some people and it’s understandable that many entrepreneurs put off doing anything about it until the last minute. However, the key is to start planning several years ahead of your target retirement date.

You should begin by holding meetings with those who will run the business when you leave so you can agree an exit strategy.

This could involve preparing a governance policy involving those who are going to take over. This would outline how company decisions should be taken and how disagreements should be resolved. Ideally, this policy should be in place before you leave so that everyone gets used to the new decision making process while you are still there to iron out any teething troubles.

There will also be several other matters to consider.

If you own a large share of the business, your successors may need to raise money to buy you out.

It may be that you agree to sell your shares back over several years so the firm’s finances aren’t put under too much pressure all at once. There could be tax implications so professional advice should be sought.

If you own the business premises, you will need to decide whether to sell or lease them back to the firm.

It’s also important that those who remain in the business consider how they’ll get by without you. It may be that your expertise can be passed on to the remaining directors, or they may have to replace you. In that case, a successor should be chosen before you leave.

If you have built up a close relationship with key customers then you should arrange for them to meet the other directors so trust can be developed and continuity assured.

Some entrepreneurs find it difficult emotionally to leave a business they have built up from scratch. If you feel that way then you might consider staying on as a part time consultant. This would provide stability for the firm and reassurance for its customers.

If you are unable to hand over to family members or work colleagues, you may need to sell to an outside company. In that case you should give yourself plenty of time to prepare your business for sale and ensure that you understand how to set a price that will give you full value.

Throughout the succession planning process it’s important to get advice from your accountant and solicitor, and possibly your bank manager. Some people may worry that they are taking too much out of the business making it difficult for the next generation to succeed. On the other hand, those taking over may feel guilty that they aren’t paying their parents enough. Independent professional advice can ensure that the agreement is fair to everyone.

Please contact us about the issues raised in this article or any aspect of succession planning.