Succession planning: When to start and how long does it take?
When to start?
The short answer is as early as possible! Some business advisors suggest that you should be considering your exit options when you start your business, and ensure that it is always ready for transition. However many business owners are too preoccupied with running the day-to-day business to spend time on planning for an event that they don’t expect to occur for many years.
So, assuming that you have not started the process, how much time should you allow before you want to leave the business? The answer depends upon your individual circumstances and the state of your business, but here is an approximate guide:
Well prepared business owner with a strategic plan, business in good shape
Business owner, disappointing performance
Family business owner looking to pass on to professional management
Knowledge based business owner (need to pass on knowledge to managers or successor)
Family business owner looking to pass on to the next generation
In the event of an emergency, such as a health issue, the process can be accelerated although this may lead to you achieving a lower value for your business on transition than if a full plan was in place, or having restricted exit options.
Research shows that businesses that have been passed to a successor following a detailed formal planning process outperform those where the owners haven’t planned. A large element of the planning process includes grooming the business, ensuring that its transition can achieve maximum value.
Allowing for the maximum amount of time should result in a successful transition, with a wide range of options for you to choose from and full value being achieved for your business.
How long does the succession planning process take?
Again, the length of time for the process itself varies with the complexity of your situation, and the extent to which you are already prepared. Looking at each step involved in the Succession Planning process, here is an estimate* of the time to allow:
Step | Timing |
Goals | Allow up to 3 months for the goal setting process, involving your spouse and children |
Family | Allow 1 to 2 months for working out how to best cater for the interests of your family |
Wealth | Allow 1 to 2 months to identify assets and liabilities, and to consider allocation |
The Business | Allow 2 months if a strategic plan is already in place and the business is in good shape Otherwise allow: 3 months to prepare a strategic plan 12 to18 months to restructure a failing business 12 to 24 months to recruit and train professional management (especially handing over relationships) 24 to 36 months to recruit and train professional management where the business depends on the knowledge and experience of the owner 36 month + to prepare family business successors |
Legacy | Allow 1 month to consider the footprint you wish to leave |
Professional Advice | Allow 1 month to appoint a team that may include: lead advisor, lawyer, accountant, financial advisor, banker, insurance advisor, family counsellor |
Your plan | Allow 1 month for your options to be documented, and your plan to be finalised |
Review | On an ongoing basis review your plan to determine if any changes are required to meet your current circumstances (at a minimum on an annual basis) |
