That sort of succession, the one that doesn’t make for riveting television or tabloid headlines, rarely happens by accident. It is the result of careful planning over several years.

In the first article in this series, we looked at the risks of leaving succession too late. Here, we discuss what good succession planning actually looks like, and how to start it, whatever stage you are at.

What a good succession planning process looks like at a glance

In businesses that handle succession well, the plans tend to share the following hallmarks:

• It is written down rather than held in the owner’s head
• It was started early, giving everyone time to prepare
• It is reviewed regularly rather than written once and forgotten
• It appoints a successor who is being actively developed
• It aligns the family, with expectations discussed openly
• It is built around advice from trusted professionals

If your arrangement already ticks most of these boxes, you are in a strong position. If not, there is plenty of time to change that with the following family business succession planning strategies.

Treat it as a process, not an event

Research by Family Business United finds that forward-thinking leaders treat succession as a continuous process of renewal rather than a handover event.

It is an ongoing process that is revisited, tested and adjusted as circumstances change. They always do, whether it is a change in the business, the family or tax and inheritance laws. A good plan anticipates that change and is flexible to move with it.

Start earlier than you think

Best practice recommends starting family business succession planning three to five years before you expect to step back. For large, complex businesses, it can be even sooner.

In practical terms, that means choosing a provisional date on which you intend to hand over the business, then working backwards from it.

Having enough runway matters because the best outcomes take time to arrange. Time allows you to mentor and properly prepare a successor. It also allows ownership to be passed on gradually and sensibly, and to make use of the tax reliefs and planning arrangements that reward those who act in advance.

Planning early also means planning for the unexpected. We often talk about the “five Ds”:

• Death
• Disability
• Divorce
• Disagreement
• Distress

Whatever your timescale, there are safeguards worth putting in place now to protect the business if something happens sooner than expected. These include lasting powers of attorney, an up-to-date shareholders’ agreement and key-person insurance.

Deciding when to step back raises an obvious question: step back to what? That depends on the route you choose.

Choose the right exit route

There are several ways to exit a business. The right one for you depends on your business, situation and goals.

• Passing the business to a family member keeps the legacy and culture intact, but relies on having a willing and capable successor.
• A management buyout hands the business to people who already know and value it.
• A trade sale may achieve the strongest price and the cleanest exit.
• A sale to an Employee Ownership Trust (EOT) can preserve the culture of the business and offers certain tax advantages.
• Winding down the business can sometimes be the right answer, but it should be a deliberate choice rather than something that happens by default.

If your chosen route is to pass the business on to family or to management, then everything now rests on the person taking it over.

Find and develop your successor

A family business succession plan ultimately rests on the person at its centre. The right successor turns all your structural, tax and ownership planning into a business that continues to thrive once you have stepped away.

A capable, well-prepared successor provides continuity, protects the value you have built, and reassures employees, customers and lenders that the business is in safe hands throughout the transition. Just as importantly, they give you the confidence to let go, which is often the hardest part.

The obvious candidate is not always the best one, so look with an open mind. Once you have the right person, you'll want to prepare them as best as possible by:

• Giving them real responsibility, with room to make survivable mistakes
• Drawing up a development plan with clear milestones
• Agreeing a proper handover period

As much as you want your successor to succeed, it can be wise to have a plan B who can bridge the gap if your preferred option needs more time to develop.

Keep the plan under review

A succession plan is not a one-off exercise. To remain effective, it must be revisited regularly, often every year or so, and always after a significant event.

At each review, it is important to check that the following aligns with your plan and intentions:

• Your will
• Your shareholders’ agreement and company articles
• Any lasting powers of attorney
• An up-to-date valuation of the business

Regular reviews keep everything aligned, so that all your careful planning is not undone by a document that no longer reflects your wishes.

Involve the right people

Succession touches more people than some owners think. A good process brings the right voices into the conversation at the right time. They include:

• The owner, whose goals set the direction
• The wider family, both those working in the business and those outside it
• The board and any other directors
• Other key stakeholders, such as senior employees, lenders and major customers
• Trusted professional advisers, who bring objectivity and technical expertise

Bringing these people together is easier with a little structure. Many families find it helps to hold a regular, planned meeting with succession as a fixed item on the agenda, rather than letting the subject surface only in moments of tension.

Take the first step today

If all of this feels like a lot, there are several small, practical steps you can take:

• Write down a provisional date for stepping back, and put an annual review in the diary
• Check your will, shareholders' agreement and powers of attorney are current and consistent with one another
• Arrange a conversation with your adviser to map out what good looks like for your particular business 
  

At Rickard Luckin, our family business succession planning consultants work alongside businesses to build succession plans that are clear, workable and tailored to each owner's desires.

If you would like to explore what a good plan might look like for you, we would be glad to help. Simply get in touch to arrange an informal conversation.

In the final article in this series, we turn to the practical steps you can take now to protect and transfer your family's wealth.