While the decision of handing over your business to somebody else is always a tough one to take, the process of completing this successfully is arguably even more challenging.
This is where a clearly defined process of succession planning can be worth its weight in gold, with this involving a series of logistical and financial decisions about who will ultimately take over your business following your departure.
But what are the key considerations when handing over your business, and how can you guarantee a successful transition? Let’s find out!
What are the Key Considerations for Succession Planning?
In simple terms, there are five common ways to transfer the ownership of your business, with one of the most popular involving handing over the venture to an heir or family member.
Similarly, several methods of succession involve the sale of shares to an interested party, usually either a co-owner, a key employee (such as a senior manager) or an entrepreneur that currently sits outside of your organisation.
The latter will usually see shares sold as part of a wider acquisition, with this most likely to deliver a higher profit for the owner who is looking to hand over their portion of the venture.
In some cases, your business may already be owned by multiple individuals. In this instance, you can also sell your ownership interests or controlling stake back to the company, before distributing them amongst the remaining owners.
This can be a more convoluted process, but one that negates the need for external investment and fortifies the position and shareholding of the existing ownership.
Once you’ve determined who will take over and how you will transfer or sell your shares, the next step is to create a viable and tailored succession plan. This will reflect the experience of the new ownership and the knowledge that they have of the business, while also ensuring that they understand any new duties or responsibilities that they may have after the handover has been completed.
At this stage, you may also decide on some form of trial run before the new owner succeeds you, especially in instances where you’re handing over to an heir or someone who is arriving from outside of the organisation.
Does Your Succession Require Financing?
In some cases, you may find that your preferred successors lack the necessary resources to buy your shares or complete a seamless takeover.
This represents a significant challenge, and one that may require a well-considered funding plan to bridge this financial shortfall and guarantee a quicker and successful handover within the desired time period.
You may be able to raise external funds against the business’s secured assets, for example, including everything from accounts receivable to equipment and commercial property.
You can even raise funds against a cumulative assortment of assets that belong to your business, for example, depending on the amount needed to cover the transfer of shares and allow the handover to be completed prior to your departure.