Succession Planning

If you own and run a business, and you have children, then you will often quite naturally consider planning a succession of the business to the next generation as your preferred exit route.

Good succession planning for this process should ensure a smooth and successful transfer of management, ownership and reward. We have set up a specialist corporate finance team to offer bespoke services in succession planning, including assisting with:

• Timing – this should fit in with the personal goals and circumstances of both generations, and changes will often be phased in over a number of years.
• As with all corporate finance transactions, an early view should be taken on how big the numbers are and how much inherent risk exists. This will then determine how much formality and use of solicitors, to add protection to both the vendor and purchaser, will be required.
• The withdrawal from the business of the existing owner-manager(s):
  • Determining whether the retiring generation wish to realise a capital sum upon exit and, if they do (perhaps as a purchase of own shares), structuring the terms of this transaction to make them as practical for both parties as possible.
  • Ensuring the transfer of ownership is as tax efficient for the vendor as possible (often through the use of Holdover Relief tax elections).
  • Structuring your personal finances so that investment and pension income can replace employment income. There may still be a need to top up income, from the company, after the retirement, via salary, dividends or rent.
  • Ideally, the retiring party(ies) should write a job specification of what management responsibilities they currently have, who will take each over and when. It is often the case there is not a full retirement, as the business founder may wish to stay on as Chairman, or in some other non-executive capacity. This should be clearly agreed in advance, as business founders who will not let go of their ‘baby’, can cause a lot of friction.
  • Tidy up the business – if there are ‘personal’ transactions going through the business accounts or sitting on the balance sheet (eg cars, properties, insurances) consider re-structuring these.
• The introduction to, and assimilation within, the business of the next generation owner-manager(s):
  • If the children are already working in the business:
    • sufficient middle management will need to be in place, with spare capacity, to take over the management void left when the next generation are promoted and take on new higher level responsibilities.
    • the succession will probably be like most MBO’s, where the new owners know the business intimately, so do not undertake much or any financial due diligence. If this is not the case, then a review of risks should be undertaken, and due diligence testing structured accordingly, to provide maximum understanding and protection for the new owners.
  • What skills gaps can be expected in the new senior management, post transaction, and what training and ‘hand-holding’ will be required ?
• Assisting with the legal formalities of effecting the change in management and ownership.

The earlier the succession process commences, and the more thought that is invested into it, the greater the chance of a smooth and successful transition. Like all plans, although much of this is common sense, committing it to writing and regularly monitoring progress, will increase the chances of successful implementation.

Instruct us to undertake your succession planning and you can rest assured that all of the multi facets of this complex area will be taken care of, to your best advantage. Experience, client knowledge and a mix of technical skills are the pre-requisites for this type of corporate finance assignment.