Succession planning for the owner managed business

Succession planning is important for the continuation of any business. Whether you want to maximise your wealth at retirement or leave the business in safe family hands. Because owner managers are often crucial to the business in which they operate unless you plan ahead and make changes it’s unlikely that the business would survive without the owner manager and it certainly wouldn’t realise its true financial potential on sale without careful consideration and often some significant changes.

At Prime Chartered Accountants we advise clients to take time out to think about their long term strategy. We ask about their goals and vision for the future. Do they want to grow and sell for maximum profit? Do they want family members to take over? How much longer are they planning to spend working in their business full time?

Having identified their goals the business can be structured appropriately for sale or succession. There are some very obvious things to be done, examples of which are:

• Identifying your needs in terms of the management team or directors to take the business forward (and then finding these people in the right time frame). Consider tying them in by using a tax effective share option scheme,
  
• removing any personal expenses which might traditionally have been paid legitimately through the business,
  
• making sure that contracts are in place with customers, suppliers and members of staff, 
  
• making sure that systems and procedures are in place and are well documented so that a successor could easily follow them.

In essence you are trying to put yourself in a position where you can step back from the business and it can run without you.

If you are the owner of a family business there are some specific questions you should ask yourself:

• Does my intended successor have the right skills and abilities? 
• Does my intended successor actually want to take over? 
• Is my plan fair to all family members? 
• Does my plan minimise the potential for conflict? 
• Will family succession be tax-efficient? 
• Is family succession the best option or would an alternative exit strategy - such as a trade sale or management buy-out - be a better option?

For further information and advice contact the Prime team.

For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.

Prime Chartered Accountants
Fact sheet published December 2006