For entrepreneurs and business owners devising a strong business strategy that will place them in a leading position in their market is a key concern, consuming endless hours of time and careful planning. Yet surprisingly, it would appear the same level of consideration is not given to succession planning for when a business owner decides to step down.
A recent study conducted by the Greater Manchester Chamber of Commerce revealed that 50 percent of respondents had given no serious thought as to what would happen when they chose to leave the company.
For many business owners, plans for the future typically centre upon company expansion and progression; retirement or selling up is too distant a prospect to justify consideration now. This can be particularly problematic for businesses, especially in the event that an owner unexpectedly dies. It can leave a company in a potentially vulnerable position.
Further research showed that an astonishing 71 percent of participants had not previously discussed succession planning with other senior figures such as directors or shareholders, with a further 1 in 5 admitting it had failed to make the boardroom agenda altogether.
Interestingly, there were three key reasons that were cited as to why business owners had neglected to consider succession planning. Many were concerned about how time consuming devising a succession plan would be; worried it would distract them from their immediate priorities and commercial aims. 16 percent admitted they found succession planning a daunting prospect, something which was hard to consider in relation to the company’s current stature. Finally, the emotional ties owners often have with their business was identified as a leading reason, especially in family run companies where personal ties can sometimes blur pragmatic thinking.
Whatever the reason, succession planning must be addressed; failure to do so can pose a serious commercial risk to businesses where a well devised plan is not in place. There can also be substantial financial consequences to both the business and the exiting owner. In order to sufficiently protect the future of the business you have worked so hard to build, owners are encouraged to broach the subject with other senior staff devising a solution that represents everyone’s best interest.
As always with the drafting of commercial documents, consulting an expert in this field is essential. Here at Farleys our specialist team of corporate solicitors have a wealth of experience advising clients across the full spectrum of business law. To speak to a solicitor regarding succession planning contact us on 0845 287 0939, alternatively please complete an online enquiry form.