Succession planning: When to start
Getting Started
The hardest part of the process can be making a start. Often once you have begun the goal setting process, the remainder will start to flow.
You may be delaying thinking about Succession Planning for a variety of reasons. However it is important to recognise that the transition of your business is inevitable and you will have greater control if the process is planned.
Begin by considering what you want to achieve from the process. What are your goals and why? Every business is unique and the optimum outcome for each one will vary.
From the beginning it is important to establish and maintain a clear focus on the core goals and outcomes sought. For example, do you want to pass the business to your children? What income do you need to retire?
Often attention shifts to taxation, financial and legal issues, ignoring why you started the process in the first place! This is why, before you commit yourself to the process, you need to understand and clearly articulate what is truly important to you.
Appointing an advisor to help you start can force you to set aside time for the process. Otherwise make a start by setting aside just an hour to start writing a list of your goals for your business, what you want to do post-transition and consider your future income requirements.
Succession planning does not have to be about selling your business or retirement. Instead view it as good governance practice in making sure that your business could cope if you were not in a position to run it.
When to start and how long does it take?
The short answer is as early as possible! Some business advisors suggest that you should be considering your exit options when you start your business, and ensure that it is always ready for transition. However many business owners are too preoccupied with running the day-to-day business to spend time on planning for an event that they don't expect to occur for many years.
So, assuming that you have not started the process, how much time should you allow before you want to leave the business? The answer depends upon your individual circumstances and the state of your business, but here is an approximate guide:
- 2 YEARS - Well prepared business owner with a strategic plan, business in good shape
- 3 YEARS - Business owner, disappointing performance
- 3 to 4 YEARS - Family business owner looking to pass on to professional management
- 3 to 5 YEARS - Knowledge based business owner (need to pass on knowledge to managers or successor)
- 5 YEARS plus - Family business owner looking to pass on to the next generation
In the event of an emergency, such as a health issue, the process can be accelerated although this may lead to you achieving a lower value for your business on transition than if a full plan was in place, or having restricted exit options.
Research shows that businesses that have been passed to a successor following a detailed formal planning process outperform those where the owners haven't planned. A large element of the planning process includes grooming the business, ensuring that its transition can achieve maximum value.
Allowing for the maximum amount of time should result in a successful transition, with a wide range of options for you to choose from and full value being achieved for your business.
How long does the succession planning process take?
Again, the length of time for the process itself varies with the complexity of your situation, and the extent to which you are already prepared. Looking at each step involved in the Succession Planning process, here is an estimate* of the time to allow:
| STEP | TIMING |
| Goals | Allow up to 3 months for the goal setting process, involving your spouse and children. |
| Family | Allow 1 to 2 months for working out how to best cater for the interests of your family. |
| Wealth | Allow 1 to 2 months to identify assets and liabilities, and to consider allocation. |
| The Business | Allow 2 months if a strategic plan is already in place and the business is in good shape, otherwise allow:
|
| Legacy | Allow 1 month to consider the footprint you wish to leave |
| Professional Advice | Allow 1 month to appoint a team that may include: lead advisor, lawyer, accountant, financial advisor, banker, insurance advisor, family counsellor. |
| Your Plan | Allow 1 month for your options to be documented, and your plan to be finalised. |
| Review | On an ongoing basis review your plan to determine if any changes are required to meet your current circumstances (at a minimum on an annual basis) |
Please note that these are estimates of the time to allow for each stage, and that the actual time taken may vary according to your individual circumstances.
- This information is provided by Staples Rodway
Getting Started- Staples Rodway New Zealand- This information is provided by Staples Rodway
When to start and how long does it take?- Staples Rodway New Zealand
