When should you create a succession plan?
A succession plan should be done as soon as possible, ideally before a crisis or unexpected event occurs. A succession plan is a process of identifying, developing and ensuring the continuity of key roles and responsibilities within a business. It is essential for any business that wants to sustain its success in the long term.
Succession planning is not just for large corporations or family-owned businesses. Every organisation, regardless of its size or industry, should have a succession plan in place to ensure a smooth transition when a key employee retires, resigns, or becomes incapacitated.
Some situations that may trigger the need for a succession plan include:
- Retirement of key employees: When key employees retire, there should be a clear plan in place to identify and develop their replacements.
- Resignation of key employees: When key employees leave unexpectedly, a succession plan can help minimise the impact on the business.
- Expansion of the business: When a business is growing rapidly, it is important to identify and develop leaders who can manage the increased workload.
- Merger or acquisition: When a business is involved in a merger or acquisition, there may be a need to realign key positions and identify new leaders.
7 Exit Strategies that require a succession plan:
- Merger & Acquisition
- Sell to partner or investor
- Family succession
- Initial Public Offering (IPO)
- Management/ Employee buyout
- Liquidation
- Bankruptcy
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Succession planning is an essential part of any business strategy. It ensures that a company's key leadership transitions smoothly.
Phil George, Partner Forrester Boyd
How The Enterprise Investment Scheme can affect Succession Planning?
For business owners who are seeking to transfer ownership of their business, the Enterprise Investment Scheme (EIS) can have implications for them. The EIS can firstly be an attractive option for potential investors due to the tax benefits offered by the EIS. Investors who purchase shares in an EIS-qualifying company can receive tax-relief of up to 30% on the amount invested as well as capital gains tax deferral and exemption on any gains made from the investment.
The EIS can also be an effective tool for business owners as it can provide a means of attracting and retaining key employees by offering EIS-qualifying shares to employees. By offering EIS-qualifying shares to employees, business owners can encourage staff to stay with the company and help to drive its growth.
The scheme is however, only one option with regards to succession planning, and business owners should seek the professional expertise of an accountant who can support them with exploring all of their options.
How The Seed Enterprise Investment Scheme can affect Succession Planning?
The Seed Enterprise Investment Scheme (SEIS) is a UK government initiative designed to encourage investment in small, early-stage companies by offering tax incentives to individual investors. The SEIS can therefore play a huge role in succession planning by providing a way for business owners to sell a portion of their company to investors, while also providing the necessary capital to grow the business.
The SEIS can also help to attract potential successors to a business, which again can affect a businesses succession plan. An accountant in this instance, can support and advise a business owner with their succession plan accordingly, if they are looking to sell a portion of their company but want to ensure the business will continue to grow and develop after they have stepped down.
How the EMI scheme can affect Succession Planning?
The EMI scheme can have an affect on succession planning in a few ways such as retaining key employees who may be potential candidates for leadership positions in the future. It can also help to identify potential successors within a business and also align employee interests with that of the business.
The EMI scheme can complement succession planning if used by strategically by business owners as it enables them to create a pipeline of internal talent who can be trained and developed for future leadership positions.
