• The Business Owner

Exit planning: Perspectives on the big picture

According to research by Legal & General, nearly 60% of family businesses in the UK don’t have a succession plan in place. It is often a task shelved for ‘some other time’, until it’s too late.

It is important for business owners, therefore, to consider the ‘big picture’ when it comes to succession planning. Should a key director retire, or crucial personnel suddenly depart, how would your organisation cope? And how can you prepare in advance to minimise the impact on your business should this happen, whether expected or otherwise?

Three succession planning experts, from Legal 500-rated law firm Willans LLP, run through the key considerations for business owners…

Start early

“There are, fundamentally, two types of exit: one brought about through choice (a trade sale or listing, or perhaps a management buyout or family succession) and one brought about through necessity (death or incapacity, or another change of circumstances). This makes it essential for every business leader to give some thought to what a planned exit may look like and how they would hope that a forced exit might look, no matter what stage they are at in the business lifecycle. Early planning coupled with appropriate professional advice will help any business leader to ease this process and maximise the potential (or minimise the impact) of any exit.

“Exit planning can take three to five years, so having a target in mind as soon as possible will enable a business leader to put measures in place that can steer the business in the desired direction with maximum impact. No matter what exit route is most desirable, three key ingredients to success are to invest in appropriate professional advice; to communicate with key stakeholders (such as the management team, if a management buyout is the desired option, or any family member that may be identified as a potential successor); and to keep all documents and records safe and in a well-organised manner. This way, any issues with the business can be readily identified and addressed at the earliest opportunity.”

Chris Wills, partner & head of corporate & commercial

Manage retirement

“A healthy succession plan avoids ‘blockages’ at the top and encourages up and coming new talent to move fluidly through the business. Managing the retirement of older workers is an essential and often-overlooked part of this strategy, but it can present a challenge; it has been reported that nearly a quarter of businesses are unsure of how to do this, and nearly 70% have no fixed retirement age (according to a CBI/Accenture study).

“The default retirement age was scrapped in 2011. Since then, employers have had to make their own decisions as to whether to have a fixed retirement age, and if so, whether this is limited to certain roles. Some employers have decided not to adopt one at all, reasoning that most employees want to retire at some point, and most will do so before their abilities have declined to the point when the employer needs to take action on performance grounds.

“In terms of workforce succession planning, there is no obviously legitimate point at which to have a discussion with an older worker about their future plans and when they might finish working for the business. This may lead to discussions about when someone might retire (or vary their working patterns) not taking place at all. It is important that employers keep the lines of communication open with older workers about their future plans, and have effective procedures in place to deal with any health or performance issues that may arise.”

Matthew Clayton, partner and head of employment law & data protection

Plan for the unexpected

“It is not uncommon for the founding members to remain involved in the running of a business into their later years. Something that is rarely considered is the potential for a lack of capacity or even unexpected death of key individuals.

“In each case, most people assume that their partners could manage without them or that their family could take their place. However, this may not necessarily be the case: business accounts may be frozen, leaving your partners unable to operate the simple every-day tasks of paying bills and salaries. It may be months before the account can be accessed, by which time it is possible that the business will have suffered irreparable damage.

“Therefore, it is vital that all business people put in place lasting powers of attorney for their business interests and choose sensible and competent attorneys to take the reins. In fact, in some industries a business partner who fails to put such provision in place may be non-compliant with their professional regulations.

“It is also important to make sure that the provisions of your will are sensible and suitable to the needs of both the business and your family. The correct combination of cross-option agreements and insurance policies can offer business partners the comfort of retaining control of the business following the death of a partner, whilst also ensuring that the cash benefit of that interest ends up in the hands of the bereaved family.

"These documents need to be drafted carefully to ensure that any available inheritance tax relief is not inadvertently lost in the process.”

Rachel Sugden, senior associate solicitor, wills, trusts & probate

Need legal support or advice?

Visit www.willans.co.uk to find out more. Alternatively, email law@willans.co.uk, or call 01242 514000, and we’ll put you in touch with the best people to help.