There are more ways than just selling or shutting down your business when you decide to move on. No matter how your business is structured (sole trader, partnership, or company), a succession plan helps you identify who will take the reins when you’re no longer there.
After establishing your business, you’re prepared to transition—perhaps into a new venture or retirement.
Deciding whether to transfer management or ownership of your business to your children or a trusted partner or to retain partial ownership while stepping back from day-to-day management, involves careful consideration.
Tip: Succession planning isn’t a quick or cheap process
Things can get trickier when the family is involved. That’s why seeking professional guidance and planning early is key.
Why you need a plan
If you’ve dedicated years to building your business, the idea of passing it on to someone else might be the last thing on your mind. Most owners lack formal exit plans — if any — because:
- it’s too early to consider it.
- there’s no time to develop one.
- they don’t know where to begin.
There are significant risks if you don’t plan for your succession. Small businesses without such plans often fail when their owners retire, fall ill, or pass away.
Family businesses
A solid succession plan is crucial if you want your family business to thrive after you step down. The plan should specify which family members will take over or present an alternative management option.
This process can be challenging, depending on your family dynamics. Involve your family as early as possible and seek professional advice.
Taking a back seat
You’ve decided to step back from your business, but you still want to stay connected. There are several ways to achieve this:
- Retain a share: You can retain a stake or shareholding in your business, providing you with income during retirement or while you embark on a new venture. Consult a lawyer and an accountant if this involves giving or selling shares in your business.
- Retain a role: You may choose to step back from the business but still provide valuable advice to your successor, particularly if they lack your experience and knowledge. Determine what role you will take, such as director or consultant, and discuss with your successor how this arrangement will work.
Getting advice
It’s wise to seek advice at every stage of succession planning. The amount of advice you require depends on:
- where you are with your planning
- your business structure — companies and partnerships may require more advice compared to sole trader businesses
- the size of your business, such as your turnover
- how much your assets, including your intellectual property, are worth.
If you have a board of directors, they can assist in guiding the planning process. You might also consider hiring an advisor specializing in succession planning.
Why intellectual property is important
Overview of business structures
Key steps
Succession planning isn’t an exact science, but there are essential steps you should take:
- Talk to your family. It’s crucial to engage relevant family members in discussions about succession, even those who are not directly involved in the business. Everyone may have different perspectives on what is best for themselves and the business.
- Set goals. Determine what you envision for your business: define your desired role, decide who should manage it, and establish your departure timeline. For instance, you might plan to step back at age 65 or when the business reaches a value of $1 million.
- Know your assets. Take stock of all your assets and liabilities. This is crucial for accurately valuing your business, whether you’re calculating shares or setting a sale price.
- Have a timeframe. Developing a solid plan can take several years. The earlier you begin, the smoother your transition will be when you’re ready to step away.
- Get advice. Seek professional guidance at different stages of your planning and exit strategy. Plan ahead and engage with advisors well in advance.
- Document your plan. Ensure that key decisions are recorded and accessible to both your family and advisors.
- Review your plan regularly, such as on an annual basis, to incorporate any changes in your business or personal circumstances.
Checklist of common business assets
Intellectual property checklist
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