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Succession Planning & Asset Protection - Part 1

The Importance of Good Advice in Running and Maintaining a Successful Family Business

Introduction

Succession Planning with Image of 4 hands of people of different agesFamily businesses are different. They have a unique set of challenges and opportunities that require careful planning and consideration to ensure the long-term success of the business and the subsequent longevity of your family dynasty.

Succession planning is an important part of any family business however, it can be difficult to get right. And let’s face it, most wealthy families are intent on getting it right when it comes to ensuring that the intergenerational transfer of wealth is set correctly. This article has been designed to help you understand how to create an effective plan for your family business as well as some practices you should avoid when drafting your plan.

Our next article will take you on a deep dive into the actual process of succession planning – how to do it correctly, when to do it and what benefits you stand to gain from it – in addition to those discussed in the article that you are reading right now.

Definition and Importance of Succession Planning

Succession planning is the process of identifying and preparing future leaders for your company. By creating a plan, you can ensure that your business continues to grow and thrive, even after you’re gone. The importance of succession planning cannot be overstated as it’s crucial for any family business to have an idea about what will happen when its current leadership leaves the scene.

One myth to dispel here and now – succession planning isn’t just about finding someone new who can replace you; it also means training people up so that they’re ready to take over when their time comes.

For instance, this includes teaching them everything from how much money was spent on office supplies last week (and why) all the way down through how much more work needs done before a project goes live next month. Additionally, it encompasses everything from understanding which vendors/advisers provide good quality work/advice at reasonable prices versus those who don’t deliver on time or use substandard materials or offer inappropriate advice.

This all while making sure everyone knows exactly what their role is within this intricate web of interconnected tasks and responsibilities so that there aren’t any gaps where mistakes could happen later down the line.

Key Benefits of Succession Planning for a Family Business

Succession planning is an essential part of running a successful family business. To reiterate, it ensures that your business will continue to run smoothly and profitably, even after you’re gone. A couple of key benefits of succession planning are:

Ensures Business Continuity

When there’s no plan in place, it can be difficult for employees to know what direction they should take with their careers or how they should act when something unexpected happens (like your death). Having an heir who has been trained in all aspects of the business can help ensure that things don’t grind to a halt after your departure.

Reduces Uncertainty

One benefit of succession planning is that it reduces uncertainty about what’s going happen next – for both you, your employees and/or other family members. For example, if someone knows he/she will inherit part ownership from their father someday, then he/she’ll feel more secure knowing where his/her future lies. This is in contrast to worrying about being fired or laid off because they don’t know where else they could get another job since they have no other skills outside of working at this particular company.

Challenges and Risks Associated with Inadequate Succession Planning

Inadequate succession planning can lead to several challenges and risks, including:

Increased risk of bankruptcy

If you have no plan for the future of your business and it becomes necessary for you to step down from day-to-day operations, there may not be anyone in place who is able to take over those responsibilities. This could lead to serious financial problems for both the business itself and its owner(s).

Increased likelihood of disputes among family members or other stakeholders

Such a situation could occur due to lack of clarity around key issues such as ownership percentages and voting rights during an owner’s transition period or death. This can cause significant stress on relationships between them and even threaten their ability to work together at all. Ultimately of course, this could result in conflict over how best to approach resolving any outstanding issues related specifically only toward succession planning itself (such as determining whether certain assets should be sold off).

Best Practices for Effective Succession Planning

We realise that we’re harping on the point that succession planning is a critical part of running a successful family business. Buy, it can be difficult to know where to start. However, with the right advice, you can create an effective succession plan that ensures your company’s longevity. So, in creating best practices you will need to:

Create a plan

Succession planning should begin with creating written documentation of who will take over for each role in your company and when they’ll do it. This includes identifying anyone who might be able to fill any gaps before or after your departure (such as interim managers). You should also include details on how you want them trained, prepared and supported throughout their transition period.

Implement the plan

Once you’ve created your succession plan, make sure that everyone involved understands their roles and responsibilities under it, especially those who are slated for future leadership positions! Be sure that everyone stays up to date on key information related to their area(s) of responsibility through regular communication channels such as meetings or email updates.

Ensure success by monitoring progress

Remember about ongoing evaluation as this helps keep everyone focused on achieving common goals while ensuring nothing falls through the cracks along the way due to a lack of attention.

Summary

We hope that by now, you have a much better understanding of what succession planning is and why it’s so important for family businesses. If you’re still having trouble making sense of all the information we’ve given you here, we encourage you to talk with an experienced estate planning adviser about how they can help you achieve your succession planning objectives.

As stated in our Introduction, our forthcoming Part 2 of this series will be focussing on the Succession Planning Process, followed shortly thereafter by insights into Asset Protection Strategies.

How FBA Can Help You With Your Succession Planning

At Family Business Advisory (FBA), our purpose is to help family businesses succeed on a sustainable basis. As such, we provide you with access to specialist family, business and technical services with a goal being to generate opportunities for families in business.

In order to complement our own particular specialised skills, over the past several decades, we have developed a network of trusted, professional advisers in such areas as:

Image of Services spectrum

Moreover, we work at all times to give you peace of mind and proactive support to help navigate any changes in the market brought about by legislative changes, geopolitical events and general market conditions – all to maximise your personal wealth and security.

These services are provided by FBA, in association with the Wealth IQ Group.

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