Why do business owners delay succession? |
Most of the wealth in Ireland is first generational in nature and many of those businesses are set to change hands in the coming years. Despite that, most business owners will not have any formal succession plan in place. The reasons for failing to develop a succession plan include:
- Business owners are afraid of compromising personal relationships
- There may be a reluctance to relinquish control, often represented by worry as to what will happen in their absence, who will be responsible and how the business will fare after their departure
- They may not wish to retire, they have very few interests that could be development in retirement
- They worry about being fair to all potential successors. An unwillingness to choose amongst children often works against succession planning
- They are concerned about communication with, and the needs of, managers and family members who are not in line for succession
- The day to day activities of running a business can be all encompassing, owners finding it difficult to take the time to step back and reflect on and focus on the planning issues involved
- A concern for financial prospects in retirement
- Concern that potential successors are not yet ready to take control
With all these obstacles, it is no surprise that most businesses do not have an achievable and well thought out succession plan in place. Our experience is that most business owners either do nothing or focus on one or two small elements of succession rather than having a comprehensive plan in place. As a result, decisions can often be made under pressure, such as when a family member becomes ill, rather than having been planned well in advance. In the absence of a well thought out coherent succession plan, the end result is more often than not, a poor one for everyone involved.
Consequences of deferring
| Succession planning failure | Potential impact on business |
|---|---|
| Poor estate planning | Higher tax payments, which can limit business growth opportunities |
| Insufficient ownership structure | Failure to develop appropriate leadership and potential tax and expense inefficiencies |
| Lack of understanding of true business value | Business unable to attract buyer or investors, or undervalued |
| Lack of contingency planning | Forced sale or succession on terms not of your choosing |
| Successors not identified, in place, or prepared | New leadership not ready to take responsibilty |
| Stakeholders not consulted and brought into the plan | Employees, family members, or other stakeholders won't accept new leadership |
| Legacy not articulated and mapped out | Legacy not achieved or reputation damaged |
| Planning for everyone else - but not yourself | Personal retirement not adequately funded |
| Failure to adequately plan for distributions from the company (dividends, salary, etc.) | Shareholder discontent or family disharmony challenges - expectations not met |
| Too little attention too late | Succession goals not achieved |
