Why do you need a succession plan?

Last year, the world was abuzz with commentary around the final season of the popular HBO series, Succession. The show follows the ruthless battle between three siblings as they vie for the position of heir to their father’s media empire.

While this is, of course, a fictional story, one aspect of it can be applied to the real world: the Roy Family could really have benefited from a comprehensive succession plan. While the lack of a solid succession plan makes for great television ratings, it has a far less desirable outcome for you and your business. So, what is a business succession plan, why should you consider it, and what does it involve?

What is a succession plan?

As a business owner, you’ve probably worked tirelessly to create something of value. When the time comes to move on, how can you ensure that your business continues to thrive in new, capable hands, and that your legacy endures? A succession plan looks at the practicalities of how your business will continue, how it will be structured, and who will run it once you’re no longer at the helm; whether your exit is timely due to your planned retirement, or untimely due to your death or disability.

When should you start?

Most businesses are built on a solid foundation of trusted and lasting relationships. Unfortunately, these relationships often end along with the owner’s exit. This reason alone makes it clear that it’s important to put a succession plan in place long before you’re ready to retire or otherwise. Whilst nobody likes to think about “the end,” it’s far easier to appoint a successor and hand over the reins while you are still involved in the business.

What should you consider?

Even if you start soon, preparing for the future can be overwhelming. Where do you begin? What should you consider? Here are some key questions to ask yourself as you embark on your business’s succession planning journey:

  • What is my vision for the future?

Identifying both your personal and professional goals and objectives is vital. What are your aspirations for yourself, your family and your business? Do you want to sell your business or pass it on? How do you want to exit your business and when? What happens if your exit is untimely?

  • Who is my successor? 

Think about who your potential successor/s would be. Do you have an heir in mind, or perhaps a professional manager? Is this person currently within the business, or will you need to recruit someone externally?

  • How will I prepare my successor?

The more gradual the succession process, the more likely it is to be successful. Consider implementing a training or mentoring programme early to prepare your successor for their future role and responsibilities. You should also include them in your business strategy and allow them to be part of the strategy’s implementation.

  • What is my business worth?

You can’t make the right decision without the right information. For this reason, it’s essential to have a realistic idea of what your business is worth. Valuing your business using an agreed valuation methodology is critical; whether the shares in your business are being sold via a management buy-out (where a senior member of staff has been identified as the successor), to a relative (such as a child taking over the business) or to an external third party via buy-and-sell agreements (i.e. identified trigger events that force the sale), it’s a legal requirement for them to be sold at fair value.

Who can assist you?

Generally businesses will consult with one type of professional – usually a legal representative or an accountant – to help them develop a succession plan of sorts. For the most part, those professionals are able to tick the boxes in the specific parts of the process they are proficient in. However, because succession planning is multidisciplinary, it is far more valuable to engage the services of an organisation that holds this expertise in these areas within in one collaborating ecosystem.

Malyssa Hattingh is the Operational Director of Cornerstone Corporate Services, part of the Cornerstone Financial Services Group, which assists businesses with comprehensive succession plans. “As a group of specialists working under one umbrella, we’ve found that we’re able to utilise our collective expertise to craft tailored, holistic succession plans that encompass every aspect of the journey and what outcomes can be expected in each area,” she says.

Make the ending as good as the beginning

Both you and the business you’ve built are completely unique in terms of your challenges, structures, objectives, and dreams for the future. In the same way, your succession plan should also be unique, taking into account all the complexities and nuances of your very specific situation. With a robust succession plan in place, you can avoid unnecessary stress, costs and conflicts when your business moves into its next succession phase. Instead, you will have peace of mind that your business transitions smoothly and all stakeholders are properly looked after.