Many small businesses in the country have failed or have not been able to last beyond a decade or two.
While there may be varied reasons, including lack of adequate capital, poor management among many other factors, there is one common reason that runs through; lack of business succession planning.
There are a myriad of examples of such companies which were doing extremely well at the onset but collapsed because the owners became medically incapacitated or died interstate, leaving the companies in a fix.
Our cultural settings have not helped matters when it comes to inheritance and therefore, when some prominent business owners pass, their properties, some of which include their businesses, suffer greatly because it normally falls in the hands of highly incompetent, visionless and managerially bankrupt persons.
There is also the habit of business owners not willing to open up their operations to anybody for varied reasons including secrecy.
But generally, business succession planning is the process of deciding who will take over your business in the future when you retire or the unexpected happens. This process is still relevant for smaller, family-run businesses to make sure the business can continue to run smoothly.
Why business succession planning
Business succession planning is one such important part of operating a business and for which reason, it should not be taken lightly, especially for small-business owners and owners who are nearing retirement.
By making business succession arrangements early, small business owners help make a smooth transition and minimise any negative effects of their departure on the company.
Continuing the business
The first point to consider in business succession planning is whether the company will continue to operate after the owner departs. Some business owners choose to simply liquidate the assets and close the business when they are no longer involved, while others wish for the company to continue without them. If the owner decides the business should continue, one of the most important decisions in business succession planning is choosing a successor.
Choosing a successor
A successor is chosen by appointing a family member, employee or other individual to take the owner’s place. Designating a successor in advance will help simplify the transition and set appropriate expectations. In addition, by providing guidance for the continued operation and future leadership of the business, employees can feel secure in their jobs.
In recent times, it is emerging that some prominent business owners in the country are planting a family tree. They are or have ensured that their children get the best of education, they place them in vantage positions within their businesses so that in the future, they can take over and run the business seamlessly. Much as this is good, the practice is only among a few.
Many business owners have bank loans or lines of credit that help them operate their companies. What many people may not realise is that, upon a business owners’ death or severe disability, lending institutions have the right to call in the debt and force repayment of the loans.
A business succession plan takes outstanding debt and lines of credit into account and provides information on how to manage debt repayment. Particular funds or assets can be selected to repay loans and should be indicated in the business succession plan.
In addition, a well-crafted business succession plan uses strategies that minimise the tax consequences of any transfers of ownership or control of a company.
Also, it is essential to properly document and finalise any business succession plans. If you are a business owner, contact a knowledgeable attorney in your area to create a business succession plan for your company. A lawyer experienced in making business succession plans can help you and your business to make a smooth and effective ownership transition.
Business succession planning does not come easy in spite of the benefits to the business owner. It might feel as though the business you have built is inseparable from you. But with forethought, planning and the right advice, the transfer of your business will herald the next phase of its growth, and the further realisation of your vision.
Some banks are very competent in offering advice to SME owners and, therefore, it is best to identify one of them for guidance.