How to ensure a smooth transition when succession planning

Business Meeting 10 Print publication


Whatever the reason for exiting a business, owner managers should begin the process of succession planning well ahead of a transaction to achieve a successful outcome on their own terms. Any delay in succession planning can generate uncertainty, eroding the value of the business.

Engaging a specialist adviser early in the process will enable a vendor to take advantage of any tax planning and appraising the outlook for potential successors, whether that be from within the family or the existing business or a sale to a trade buyer or private equity.

The appointment of advisers with the relevant expertise can add value and avoid potential pitfalls. They can guide the owners through the process and give insight into the current market trends.

Relevant considerations for an owner considering an exit will invariably include:

  • the “tidying up” of the business ahead of due diligence. The process of preparing the business for sale can take upwards of a year. It is worth taking the time to ensure that there are no “hidden nasties” buried within the company, such as pending or ongoing litigation or tax liabilities. This process can also be an opportunity to demonstrate the business’s strengths (such as strong regulatory compliance) which can add value in the process
  • the likely price, in particular whether elements will be deferred (and related to the future performance of the business)
  • the extent of any continued involvement in the business (e.g. as a consultant) minimising exposure for claims under the sale and purchase documentation – warranty and indemnity insurance is more prevalent than before
  • the scope and nature of any restrictions on future business activities
  • minimising personal and corporate tax liabilities.

There is a lot to think about. The sooner you start, the less chance of a rushed decision being made, to the detriment of the owner and business stakeholders.