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Succession Planning – a key consideration

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Succession Planning – a key consideration

 

In most small – medium sized businesses, there are key individuals who play a pivotal role in the success of that business. But what happens when those key individuals retire or choose to move on?

Retention of key staff is often fundamental to growth and profitability. This can be achieved by rewarding staff for loyalty and incentivising them to stay.

Many business owners wish to try to protect their business and the running and control of it, and are reluctant to release any element of control unless absolutely essential. However, it is possible to retain such control whilst offering loyalty rewards to key personnel.

Should a business owner wish to reward staff by offering equity in the business, but have concerns about the impact upon the decision making by proprietors of the business, one mechanism could be to issue a separate non-voting class of shares to staff.   Alternatively, an option to receive shares in the future could be offered

This could, for example, tie in with a sale of the business and loyal staff would be rewarded with a share in the future sale proceeds without jeopardising the current business. These mechanisms may not only inspire loyalty but also encourage staff to focus on profitability.

When considering retirement of key personnel, a sound business succession plan is beneficial, and more often, absolutely essential to reduce disruption and to maximise the value of the business to meet future needs. Training, mentoring and retention of key staff are essential together with planned exit strategies for owner managers.

Our commercial and employment teams at Crane & Staples can explore and develop these matters further in relation to your particular business needs

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