How are you planning to hand over ownership of your business, one day? You have likely spent years building it to a success, so it would be a shame to see it flounder later due to poor preparations. The events of the last year have brought this subject to the fore of many business owners’ minds, yet fewer than 25% of company boards admit to having a clear succession plan. Amongst the family-run firms in the UK, the figure is even higher at 42%. Here at Vesta Wealth, our financial planners in Cumbria, Teesside and across the North of England are at hand to assist with this key area of business planning.
Why have a business succession plan?
How might your business feature in your own retirement plan e.g. to generate an income? When you die, what do you expect to happen to your business? Considering these sorts of questions usually means integrating your business plan with your estate plan, which can be especially helpful in mitigating unnecessary taxes. Having a clear plan also helps to avoid potential business chaos or failure, should you – or a business partner – prematurely die or become incapacitated and can no longer work.
In short, business succession planning is weaved into the wider fabric of your overall financial security, and that of your family. This is the case whether you are a sole trader, a member of a joint partnership or a key company shareholder.
Looking in and outside the family
Are you planning to have your son or daughter take over your business when you are ready to hand over the reins? Perhaps he/she is willing now, but in 10 or 20 years their dreams might change. Maybe they lack the skills or interest to take over things. In any case, it can be wise to have a list of qualified, potential third-party buyers who you can viably sell to in the future, with the proceeds eventually going to your loved ones. Whatever happens, it is wise to factor at least two things into your preparations for future succession:
- Weigh carefully when you intend to introduce your child to the business. Bringing him or her too early, when they lack experience, may lead to job frustration as you refrain from giving them any real responsibility. Leave things too late, however, then your child might go too far down a career path of their own to abandon it and enter the family business.
- Prepare yourself for the transition. Remember, when your child takes the reins, he or she will be in charge, not you. Many business owners struggle to give up control, especially when they see their son/daughter making decisions they disagree with. Yet if you try to assert your authority after putting them in charge, you risk aggrieving them to the point where they may eventually resign.
Integrating succession with retirement
Many business owners plan to use their business to help fund retirement, perhaps by selling it and directing the proceeds into a pension. Or, perhaps you intend to retain a degree of equity after selling the business, to provide a regular income. Whatever your plans, you will need to address two questions: “How much do I need to retire?” and “Am I on course to have enough?”
For most UK business owners, their business represents a large part of their estate, possibly more than 50%. Therefore, if you hope to use your business as a way to help fund retirement, then a plan is required to help unlock its value to help you achieve your goals. However, there can be a lot of complicated matters to work through, leading many to seek financial advice to address them. For instance:
- Business value volatility. If your business does not produce steady revenue year on year, then this can bring a significant diversification risk to your overall portfolio.
- Taxes. When selling a private business, these can be numerous and complicated.
- Business continuation. If you plan to hand over your business one day, then taking value from the business for retirement purposes can weaken it and jeopardize its long term viability. Careful planning is needed to balance these competing interests.
- Personal issues. When you have spent years or decades building up your business, it is common for business owners to see their business as more than just an investment. Rather, it becomes fused into their identity – making it psychologically challenging to part ways with it. A financial planner can help you manage this personal transition based on their experience of helping similar clients.
Invitation
Succession planning is a key part of any business owner’s wider financial plan. Yet there are many important (often difficult) areas to work through, making sure it integrates with the rest of your financial goals and strategy, especially regarding retirement. We are here to help.
If you would like to discuss your financial plan and retirement strategy, then we would love to hear from you. Get in touch with your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.
Reach us via:
t: 01228 210 137
This content is for information purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult your Financial Planner here at Vesta Wealth in Cumbria, Teesside and across the North of England.