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It Is Never Too Early For Succession Planning
Succession planning no doubt involves asking and answering some difficult questions; especially for the head of the family or chairperson of the business.
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If there is one thing the COVID-19 pandemic has taught us, is that, life, business and all things related are unpredictable. While this might be a temporary situation, it has made people more conscious of their health and wealth, and how they need to safeguard both for a comfortable future. Never before has the importance of succession planning been felt more by businesses, especially family- run businesses. In fact, a lot of business owners are also using this lockdown as an opportunity to prepare a will, or a constitution to bring in a sense of certainty, during these uncertain times.
It has been traditionally assumed that in the case of a family business, the eldest son will take over the reins from his father. However, as the global business environment evolves, with policy changes, and the influx of disruptive technologies, it has become imperative for a succession plan to be drawn out that takes this into consideration. Whether the plan includes transitioning the business within the family or having a professional come on board from outside the family, the earlier there is clarity on these aspects of operations, the better it is for the business to plan for the future.
Succession planning no doubt involves asking and answering some difficult questions; especially for the head of the family or chairperson of the business. One of the most important questions to ask is “when is the right time to step down?” By giving oneself a time frame, the task of passing down knowledge is undoubtedly smoother. Very often, the family has a fair idea of the future they have envisioned for the company, and along with the successor or professional, the two can work in tandem to craft out a final version which is a combined effort of how to take the brand to newer heights.
Going through succession planning can also be an eye-opener. While the family, with their hands-on experience gained over the years is an asset, it is important to complement this with the expertise of a professional. The family may not fully know how to take their business to the next level, which comes to light during succession planning, and is also useful in handing over the business to a worthy successor. Appointing a board comprised of both seasoned family business professionals and external ones is an effective way of separating ownership from management. At this juncture, it is important to engage with trusted advisers and members of the family, for utmost clarity on the way forward, and to ensure goals are mutually agreed upon and achieved.
Furthermore, one of the most important aspects of succession planning involves ensuring financial security for the family. By including personal financial plans as a part of the overarching plan, it will assure the family of their financial stability. In addition, a fool-proof succession plan lays out the groundwork for future generations to abide by the rules governing Rights and Obligations of Individuals/ Employment/ Non-Employed Owners/Women/ Compensation/ Family Fun/Bonding and Performance Evaluation Policies. It also defines the media policies, safety nets, philanthropy, and education and mentoring policies, which are to be followed.
Once the basic understanding of a succession plan is in place, the family can begin to iron out the details. These would include evaluating opportunities to sell/transfer control internally, identifying opportunities for the lowest tax liabilities, as well as funding with insurance. By planning at an early stage, one can also identify roadblocks, and begin work to clear them.
A thoughtful discussion is at the core of succession planning. It is always advisable to do so at a time when everyone is amicable with each other, and not prolong it, till it is too late. The thought of discussing one’s demise or exit from a family business is no doubt a difficult conversation to have. That being said, family businesses have a rich history in India, and joint efforts from all fronts to continue to grow the business makes succession planning a very important step towards the future.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.