Why you need a succession plan for your self-employed business

It’s important to consider the future when you run a business. Whether you have a detailed business plan or a more vague collection of ambitions, they will guide your current decisions and strategy. But what happens if something unexpected impacts your ability to work, or you decide you want to move onto something else? This is why you need a succession plan for your self-employed business.

Like pension planning or writing a will, it can feel unpleasant to consider a future where you’re not integral to your business. Which can make it tempting to put off or ignore. But that can make the transition a lot more stressful and difficult if it becomes unavoidable in the future.

There can be pleasant reasons for changing the ownership and management of your business, or unpleasant and unexpected causes. In both cases, a little preparation will make the transition less complicated and stressful for you, any partners or employees, and your family.

Your succession plan should cover what happens if you, or any other key member of your business, leaves in the future. It may be due to planned retirement, selling your company and stepping away, unexpected illness or other events which you might not be able to predict.

It future-proofs your business by helping you to identify people or staff who might be suitable to lead your company, the skills and training that may be required, and what other steps might be needed to ensure that everything doesn’t fall apart without you. Partners and staff may also be more motivated if they know there’s a plan for them to advance in the future.

By identifying gaps in skills and training, it enables you to ensure family, friends, partners, or staff have time to build up with abilities in those areas before it becomes a necessity. And lets them build up relationships with your clients, customers, suppliers, and service providers in advance of the handover.

A succession plan also highlights any gaps in your own personal planning. There’s no point in dreaming about early retirement if you haven’t invested enough in a pension or made other alternative investments to fund it.

Finally, it helps you ensure all the required preparations are in place when the time comes to step away from your business, such as appointing new directors to a limited company, changing your tax status, or transferring VAT registration, as well as getting your accounts and records in order.

There are a number of steps required to change the ownership of a business, especially if you have staff and shareholders to consider. Whether you’re selling or stepping down to let someone else manage the company, you’ll need to name your successor, and inform everyone of any changes that directly impact them.

The Transfer of Undertaking (Protection of Employment) Regulations 2006 protect the rights of employees when a business changes ownership, unless redundancy applies, in which case a consultation process needs to be followed. It’s definitely worth working with a specialist in employment law to ensure that the correct procedure is followed.

You’ll also need to ensure clients and suppliers are informed, along with service providers such as business insurers. If you’re appointing new directors, you’ll need to do this before you step down, and inform Companies House, and update your tax status with HMRC.

Both illness or death can be an unexpected cause for a successor to take over earlier than you may have originally planned. As a business owner, it’s important to have a will in place that ensures business assets and shares are allocated appropriately.

While it’s not a pleasant subject to consider, without a will there are no Executors or powers for them to act, meaning that it can take a lot longer for intestacy rules to be applied. This doesn’t cover partners who are not married or civil partners, for example. And could mean your business passes to descendants in a less than ideal way. 

It’s possible to write your own will, but it’s recommended to speak to a solicitor, especially when it includes businesses or high value assets.

Succession planning also helps to prepare your business if you or another owner are impacted by sudden illness. If you’re dealing with a serious health issue, it’s going to be less stressful if you know your business needs, and those of your family and partners are protected. While IPSE members can benefit from illness and injury cover in the short term, illness could mean months away from work or a permanent change to your lifestyle. 

If you’re a sole trader or single shareholder, it’s important to ensure that someone else can get access to important business documents and accounts if needed. It can be as simple as storing a document securely with key information, or filing it with your solicitor in the event it’s required.