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Succession planning for your small business

Running your own show is a busy business. When you’re hard at it dealing with challenges in the here and now, it’s all too easy for future planning to take a backseat. That’s part of the reason why thousands of small businesses don’t have a succession plan in place. And it’s to their detriment, according to Ballantyne Law principal James Ballantyne, who has amassed a wealth of experience helping small businesses owners and directors hand on or sell their businesses.

“The loss of an owner can often mean the loss of their business if there’s no plan in place – or the plan is not properly funded by insurance,” Ballantyne says.

“We also see clients approaching retirement age who have not thought about a succession plan and find that their business is not necessarily a saleable asset, or they haven’t considered who might be an interested buyer. “This can result in delays to retirement or an owner receiving significantly less return on their investment in the business than they otherwise might have had.”

Putting aside time to plan

The best time to plan your exit from a business is when you start it, Ballantyne believes – and the second-best time is now. Doing it properly means working your way through a wealth of questions and scenarios including:

Planning for the unexpected

It’s also recommended your succession plan contemplate the possibility of involuntary departure, due to illness or death. This is particularly important if your business has more than one owner. In these circumstances, the right insurance can be make or break, according to Ballantyne. “By arranging appropriate life, trauma and/or TPD policies, businesses can ensure an orderly transition in trying circumstances while also ensuring that the departing owner, or their family, are appropriately compensated for their interest in the business,” he says.

And if the business’s fortunes are heavily dependent on the exertions or involvement of a single individual, key person insurance can help to protect it from adverse financial impacts, in the event of their unexpected departure.

Retaining run-off cover

For many business owners, a successful sale means they’re over and out but that’s not necessarily the case if you’ve been active in the professional services sphere. Should a claim arise after you’ve ceased to own or operate your business, you could still be held personally liable. A run-off insurance policy can protect you against such claims. The length of time you’re required to hold one can vary and it pays to talk to the professional body governing your industry and your insurance broker to ensure you’re properly covered.

Cover to support you and your business through to the next stage

If you’re the owner or director of a small business, it’s worthwhile ensuring your succession plan is supported by appropriate insurance cover. If you’d like some help to review your arrangements, contact BICS today.

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