Details to Consider in Succession Planning
August 5, 2012
It may not be something you enjoy thinking about but one day, you will leave your business. Possibilities include selling your business, leaving because of health concerns or retiring. Since you’re head of your organisation, you need to prepare for this day to ensure that your business will continue even when you leave. Here are the details you need to consider in your succession planning.
- Current owners covered
Determine who will be involved in this succession plan. Would the succession apply to all the partners of the business?
- Type of succession
Specify the type of succession you have in mind. Will you, as the business owner, be removed completely or partially from the company? If you plan a partial succession, what will your future involvement entail in the company?
- Successor details
Name your successor. Is the successor a business partner or family member? Think about how you'll inform the organisation about your successor, and prepare an alternative replacement in case the chosen successor is unavailable.
- Succession schedule
Prepare a timetable that will specify each stage in the succession process. Don't forget to include the tasks you need to accomplish for each stage, and list down when you expect each stage to start and end.
Consider if there are any restrictions in the succession.
Planned organisation structure
Outline what your company’s structure would look like after you leave.
Essential personnel changes
Enumerate all the positions in the company and the people that will fill the position when the succession occurs. Don’t forget to prepare the following as well:
- Skill retention strategies
Prepare plans to ensure that personnel skills are maintained. In addition to your skill retention strategies, think about assigning responsibilities to key people to make sure that your plans are met. Also consider how these responsibilities will be documented and imparted to personnel. Perhaps you can implement an internal process that will regularly ensure that the staffs' skills are still suitable for the organisation.
- Training programs
Maintaining skills are one thing, but acquiring new ones is another. Think about training programs for upgrading personnel skills and preparing potential successors. Would training be provided internally or by a third-party provider? It may be a good idea to include change management training for the entire organisation.
Changes in registration
- Registration transfers
What are the registrations that you need to update when you leave? This could probably include local licences and permits, intellectual properties, Australian Business Number, Australian Company Number and Goods and Services Tax.
- Change of business structure
Would there be changes in your organisation's structure after the succession? For instance, if the business was originally a partnership and the new structure will be a corporation.
- Other transfers
Don't forget to include other possible registration transfers like leases and memberships.
- Contracts/Legal documents
Are there any contracts that need to be updated because of the succession, like perhaps a partnership contract? Do you need to prepare any new contracts? More importantly, is there a legal document that specifies the terms of the succession? If so, what are the terms?
- Buyout agreement
For partnerships: do you have a buyout agreement in place? A buyout agreement is a legal document between co-owners that govern situations like when a co-owner retires or leaves the company. Make sure that your agreement has specific terms for different situations, like if your partnership shares are open to family members or other partners.
Being the business owner or one of the owners, you will also need a will ready to determine what happens to your share of the business in case a death occurs.
There needs to be an insurance policy to protect your business from collapsing in the event of injury, disability or death.
Risks and contingencies
List down the possible risks to the succession and detail its corresponding contingencies. For instance, if your company’s share price declines after announcing your departure, what will you do? Don’t forget to include each risk’s possible impact on the business and likelihood of occurrence.
- Current value of the business
Determine your company's current value.
- Retirement income
Specify any retirement payments after the planned succession date. Is your payment in lump sum or regular payments?
- Details of the sale
In case you sell your business during the succession, what is your minimum asking price? Who will receive the profits?
- Buyout details
If there's going to be a buyout, what will be the value of your shares? How much will you sell it for to family members, business partners or external third parties?
- Payable taxes
Think about the taxes that are payable in case you transfer or sell the company.
Remember to include any supporting papers related to the succession plan. This may include curricula vitae and copies of contracts.