Why a business succession plan is important besides estate planning for your family

The first and perhaps most obvious reason is to avoid disputes, lawsuits and wars among heirs and continuing family members. Moreover, today’s nuclear families mean that the kids may not necessarily want to join or take over the family business. For parents or owners who do not want to wrap up or sell their business due to a lack of reliable set of hands to run it after their demise, it is important to have a succession plan in place. They will thus be able to identify existing employees or professionals from outside to run it keeping their mission and vision intact.

As per Indian succession laws, the wealth and assets from a business are equally distributed among legal heirs. So is there a need for business succession planning at all, one might wonder. While an estate plan is a way to ease the transition of personal assets to legal heirs or preferred beneficiaries in order to minimise disputes, a business succession plan ensures the longevity and profitable continuity of the business in a way that it keeps providing wealth to the owners for a long time in the future.

No, it is not just for large, listed companies or family-run businesses but for any enterprise or set-up that employs people and generates wealth. These can include manufacturing businesses, service providers, shops, restaurants, factories, professional law and architectural firms, production houses, etc. These can have different structures such as proprietorships, professional firms, limited liability partnerships, private limited companies, public companies etc.

Replacing the leader is one of the most crucial risks that businesses run. Succession planning, most importantly, mitigates this risk. Secondly, it helps retain the stakeholders’ trust and confidence, as well as protect the interest of lenders and creditors. In difficult times, the business may die due to lack of direction if there is no plan. In case of small businesses or professional services, the plan protects and preserves its goodwill and value, which helps the family get regular royalty or dividend.

Just like writing a will, succession planning for a business should not begin at the fag end of the owner's career or life but well in advance. Start by identifying the direction that the business should take and the people who can achieve this. Talk to these people whether they are family members or outsiders, and if they agree, train them so that they are ready for a smooth transition, when the time comes. Execute the plan through trial runs to detect any loopholes and shortcomings so that when you or other leaders are not around, the business can function without hiccups. Finally, all legal documents need to be signed and executed, and it is best to employ professionals such as lawyers, tax experts and chartered accountants to abide by the relevant rules.

Step 1: Identify and list the future goals and direction for your business.
Step 2: Pick out the positions that will need to be replaced if you or the top leadership retires or dies.
Step 3: Look for the people who can fi ll up these positions, whether these are family members, existing employees or professionals from outside.
Step 4: Put in place the documents listing terms and conditions to be agreed upon by the candidates.
Step 5: Train, hone and nurture these people for their future roles.
Step 6: Execute trial runs to monitor their performance and check for flaws or shortcomings.
Step 7: Arrange resources, draw up documents for smooth transition of the plan and people.