Successful succession needs careful planning

It can be difficult to hand over control of a company you’ve spent most of your life building and nurturing.

While business executives may dream about a retirement spent perfecting the golf swing or relaxing on a sun drenched beach, they’re just as likely to wake in a panic about how the firm will cope without them, or whether their children will squabble about who’s in charge and then squander it all away.

And there’s the other side of it. What if the business isn’t earning enough to allow you to retire? These thoughts trouble many people so it’s not surprising that they push them to the back of their minds as something to deal with later.

Unfortunately, that can be a big mistake. It is possible to ensure a smooth and fair succession to the next generation but it takes time.

It’s no good waiting until three months before the retirement date and then suddenly deciding you want to take all your money out of the business and sail off into the sunset. That could be disastrous for you and those left to carry on the business.

It’s vital to start planning early, preferably several years ahead of your target retirement date. This is particularly important for small to medium size firms where the departure of one key person can have a major impact.

The first step is to hold meetings with those who will be left running the company so you can agree an exit strategy.

If you own a large share of the business, the remaining partners or directors may need to raise money to buy you out. Or if the firm is very successful, some of its profits could be used to raise part of the necessary finance. This approach would need Inland Revenue clearance but is worth exploring.

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. In that case, you may need to change your will so the arrangement can continue should you die before the sales are completed. There could be tax implications whichever system you choose for withdrawing capital from the firm 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. This could be influenced by how much you capital you need to raise or whether you would be content with a monthly rent.

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 to ensure a smooth transition.

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. It can also be hard to go from being at the centre of a buzzing workplace to suddenly being out of it completely. 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.

Throughout the succession planning it’s important to get advice from your accountant, lawyer and possibly your bank manager. They will have helpful suggestions and can ensure that the agreement is fair to everyone.

This is particularly important if you are passing the business on to family members because emotions can easily get in the way. Sons and daughters may feel guilty that they are demanding too good a deal from their parents, while parents may feel they are taking too much out of the business making it difficult for their children to succeed in the future.

Independent opinions from lawyers and accountants can help guide and reassure both sides. They can also knock heads together where necessary because with families there can be a tendency to let things drift and that is potentially bad for both sides in the long run.

Once an agreement has been reached then it’s important to get it all written down properly so it’s legal and everyone knows where they stand.

Then and only then will you really be able to relax properly and look forward to the retirement you always promised yourself.


For further information contact Peter Sutherland on 0115 947 0641 or email psutherland@andersonssolicitors.co.uk