Succession Planning Final Five Steps Toward the Future You Want

What’s Your next Move?

This RBC Caribbean Business Growth Series dedicated to Business Succession Planning provides an overview of decisions you will need to take for the final 5 of 10 key areas that you may be facing in the coming years as you plan your succession.

You can learn about the First 5 of the key areas on our first article related to discussing your plans with you family, organization of your critical papers, determining the value of your business, considering your future income and your retirement needs along with tax, financial and legal implications for the transition.

Consider these final 5 steps, and you’ll be well on your way to a smooth succession plan.

6. Have you addressed the transfer of labour (work load) as separate from the transfer of management (decision-making)?

• One of the most important parts of succession planning is how you manage your human resources. Succession planning involves the transfer of leadership, decision-making and management responsibilities as much as it does the transfer of assets.
• You will need to assess – separately – the day-to-day workload duties from the leadership and management responsibilities of the business. Family members may be stepping into the business, but they will need the right skills, experience and personality to lead the business. Ability and birthright don’t always go together.
• While you’re at it, do an honest check-in on your own skills. Perhaps you are the best one to train and mentor the next generation, or maybe an outside consultant or business expert could be more effective? It’s important to assess the need for current and future skills, plus identify areas where skills training or upgrading may be needed.
• A gradual transition may be the best solution to provide the time needed for the new managers to get the training they need, or for parents to transfer their knowledge before the transition is fully implemented.
• Successfully managing the human side of your succession plan will mean that the business will be well positioned to thrive in the years ahead.

What’s your next move?

1. Create a list of day-to-day business tasks that need to be covered off after the transition.
2. Create job descriptions for current employees/managers, plus those you would like to see in those roles once you are out of the business.
3. Discuss these expectations with the key players, and your family members.
4. Identify skills that are required by position.
5. Research training opportunities (if needed) for new managers or employees.

7. Do your plans take into consideration allocation of business assets for the children who are interested in being involved in the future of the business (plus those who are not interested)? Have you also considered those who have joined the family through marriage?

• Is it clear which children want to take over the business? Do you have family members who do not want to be involved? Are spouses of your children actively involved, and how do you account for that? Can your children successfully work together in the business? Do the children all want to own the business together, or is that just a dream of the parents?
• Sorting out how siblings will work together, and determining fair treatment for all can be one of the most challenging aspects to succession planning. These discussions and decisions can be emotionally charged, but ultimately, you must decide what makes the best business sense for the company. That may mean honoring what the next generation wants, not insisting on having it your way.
• A fair arrangement between family members may not be an equal one. Crafting a fair arrangement is something that may require expertise beyond the family, such as a mediator or someone who has experience helping families manage the succession of a business.

What’s your next move?

1. Talk with all family members (those who want to be involved in the business, and those who do not) to find the best path forward.
2. Talk openly about roles, responsibilities and what each child’s expectations might be.
3. If needed, hire a mediator or consultant to give you ideas or help you work through this part of your plan.

8. Have you identified specifically who will take over the business: children, employees or outside buyers?

• If you have family members interested in taking over the business, that’s often an ideal situation. However, you may not have children willing or available to take on this kind of business. When that happens, you might consider selling to one of your partners, or even a third party.
• Selling to a partner means the person taking over the business has inside knowledge of the operation, and that can increase the possibility of success. If the partner doesn’t have sufficient personal equity for an outright purchase, you could structure an agreement to support the purchase over a longer period.
• If there is no obvious partner to step up to the plate, first discuss this option with your family to ensure they agree with a sale to an outside party. It’s also important to talk to your accountant about possible tax strategies to make sure your tax obligations are met. Real estate agents, lawyers and auctioneers in your community can be valuable resources when finding a buyer for your business.

What’s your next move?

1. Bring your family members into a discussion about selling to an outside buyer.
2. Draw up a list of potential buyers, or get in touch with others in the community who may be able to recommend a potential buyer.
3. Consider selling land, quota, machinery and equipment together, or hold an auction to sell your individual assets.

9. Do you have a formal, written succession plan, with an anticipated timeline for when you would like to transition your business to the new owners?

• In succession planning, you are managing the expectations of two generations who likely have very different goals. The parents want financial security and perhaps an ongoing role in the business’s future, while the younger generation may want adequate family income and an authoritative role in the management of the business.
• A formal succession plan can capture and prioritize these varying desires. You can tailor the plan to ensure that everyone’s needs are met. It can also be a great way to outline firm expectations about the timing of the transition, so everyone’s on the same page.
• Any succession plan should be considered a living, evolving document. Review the plan regularly to ensure it stays up-to-date and continues to meet the evolving needs of the business and the family. Tax rules, markets and business operations change quickly, but a good plan (that is, a plan that’s on paper!) can be one way for future dreams to stay on track.

What’s your next move?

1. Talk openly with those involved in the transition about everyone’s needs and expectations.
2. Schedule regular reviews of the plan with the key players.

10. Do you have your transition management team in place, including your banker, accountant, lawyer, financial advisor or planner?

• Family business successions can be very personal and emotional transactions. While you may be tempted to keep discussions ‘in the family’, and not involve outside parties, working with professionals who have helped other families through successions can be extremely valuable.
• These experts can provide you with insights and advice you might not have considered. They can also help move the process along by keeping all family members accountable.
• Whether you decide to coordinate the transition yourself, or appoint a trusted advisor to spearhead the planning and represent your interests, your team members can work with you – and with each other – to ensure the successful transition of your business.

What’s your next move?

1. Review the team checklist and decide which (if any) of these professionals will bring value to the discussions and your succession plan.
2. Choose the players you think you need, along with your family members.
3. Set up appointments with the professionals you wish to involve.