Meticulous planning is the key to leaving your business in good hands

ShipleysBusiness owners who have built up a successful company with a strong reputation and an impressive talent base are often keen for what they have created to continue. But how do you pass on the baton? And, more importantly, how do you leave the business without damaging what you’ve created?
The sooner you start planning your exit the better. This is because your long-term plans – that is, when you want to exit and what form the business will take once you have left – should guide your short-term decisions.  If they do not, then you may encounter obstacles further down the line. For example, if you want to attract a buyer to your practice, then you need time to get it looking its best.
Similarly if you want the business to continue, it will be important that there are others who are capable of taking hold of the reins.  The timing and nature of your exit should influence key decisions about developing your staff, recruitment, investment in the business and even which leases, contracts and other arrangements you make.
The Ideal Scenario

Businesses that are able to facilitate a smooth and successful transition after the departure of a the owner demonstrate several common factors: a carefully planned succession approach ; a phased exit from the business; a supportive, clear and up to date shareholders’ agreement that doesn’t pose an obstacle to the plans.
Good planning is imperative.  It helps if the senior team allocate time to discuss their respective exit goals periodically. They will need to agree plan and budget for the cost of the exit (e.g. the withdrawal of capital in the case of a partnership). To avoid a mass client exodus they should also look at the management of the client base and what specialisms will be needed to ensure continuity.
It is also important that the shareholders or partnership agreement supports rather than hinders the exit plans. This means keeping it up to date and amending it to reflect any changes as they emerge. The more time you allocate to succession planning, the more opportunities there are to iron out any conflicting views across the senior team.
Nurturing Talent
Management teams often underestimate how hard it is to retain clients that have been handed over during the course of a succession.  This is because the successor was not involved in forging the initial relationship. So allow enough time and training resources to support your next generation’s success. Clarify what is expected of them and ensure the handover period is slow. This will give clients enough time to adjust to their new point of contact whilst their traditional one is still around.
In terms of the financial implications, if the business owner plans to incentivise senior staff by offering an opportunity to buy an equity stake in the company, there are several approaches that can be taken. Buying into the partnership over a five year period via a restriction of profit share; deferred consideration – in which the partnership lends the individual the money and, in the case of limited companies, ownership can be achieved in a tax-efficient approach by using an enterprise management incentive scheme.
Partnerships and limited liability partnerships (LLPs) should bear in mind the fact that recent legislation has clarified what does and does not constitute an equity partner. It is important that none of your fixed-share equity partners now falls foul of the new legislation, which could treat them as employees with a liability for national insurance contributions. There are solutions to this, and it is recommended that you take professional advice.
Planning your exit from the business is best undertaken sooner, rather than later. Key to a smooth transition will be a strong plan, open communication, an accommodating partnership or shareholders’ agreement and careful nurturing of your next generation.

STEVE FOSTER is a principal at Shipley.

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