With a bit of dark humour, we sometimes talk to clients about their ‘hit by a bus’ scenario. In other words, are they prepared for an accident or serious illness? Are you?
You might get lucky and bounce off a bus, with a sore head and a few broken bones. Sadly, it could be worse. So there are two things to consider:
- If you’re laid up in hospital, how will your business partners and broader team cope? You probably know stuff about how things are done that no-one else does.
- If you’re no longer there, who would take your place? How do you ensure there’s no conflict around who takes control?
We thought it would be useful to look into this a little more. Think of the following as a checklist of things you should put in place. We can help you put these actions together in a document called an ‘Emergency Succession Plan’. For the people around you, it should cover what to do and how to do it – when you’re not there to help.
Who will be in charge?
The problem with doing nothing is that your business may not automatically pass on to the person you’d like it to. That might damage the business (and your legacy) and cause problems for partners or family members. This will ring bells with anyone who watches Sky’s hit show Succession. The 1980s show Dallas told similar tales of the battles to take control of a family company.
These dramas are best left to TV screenwriters. So it’s important to choose a suitable person to take over. They could be a business partner, a key employee, or even an external buyer. That person needs to know that their role is documented and has been shared with other relevant parties. To make sure they’re well-prepared, they may need extra training and advice. Succession planning can also stop the loss of opportunities to save inheritance tax.
Fix the basic nuts and bolts now
To get on top of these issues, here are three things you could start this week:
- Tidy up your company’s legal documents. Ensure that the articles of association and shareholders’ agreements are up-to-date. Check them over and note where changes may be needed to fit the succession plan. If you’ve not already done so, set up a lasting power of attorney (LPA) for business affairs through the Office of the Public Guardian.
- Organise your company’s financial records. List all the key financial records, tax filings, and important documents you keep. Make sure they’re organised and easy to get to, with watertight passwords where needed. Some companies must conduct regular financial audits – check with us if you need some advice.
- Create an operations manual. This must cover your essential business processes and procedures. Many business owners find it useful to get a helping hand with this. The Federation of Small Businesses (FSB) is a good place to start. If you’ve already got one of these manuals in place, check it over and pop a frequent review in the diary.
Drafting a ‘business will’
If you own and run your business as a sole trader or sole director, you can pass on your company using a will. A ‘business will’ is similar to its ‘personal’ version. Both types will name executors or trustees. Both can include family members or other individuals as beneficiaries. Both need the legal formalities to be valid, so they must be written, signed, and witnessed.
The will is the document that states how the assets should be handled. Most of our clients have clear personal feelings about this. Who should inherit your business or shares? Many are keen for their family to be involved with their business. Others may want to leave their family a sum of money equal to the value of the business or company shares.
Using a buy-sell agreement
Sometimes a buy-sell agreement is needed. This re-allocates a business, or the part ownership of a business, when someone can no longer be an owner. It spells out exactly who owns what in the event that a partner leaves the company, rather than leaving these decisions to executors or the courts. Where extra liquidity is needed to buy the shares, this is usually funded through life insurance policies. You can get these with insurance companies like Legal & General or Aviva.
While you’re thinking about insurance, don’t forget to look at policies that provide financial support in the event of an owner’s death.
Communicate
When you’re happy with all the parts of your succession plan, don’t let it gather dust. Share it with your stakeholders, including family members and employees. Customers and suppliers will also appreciate that you’re planning for the unexpected. People like certainty. Keep them informed about any updates or changes.
We’re affected, too
Over the years at Merlin, we’ve seen many real-life ‘hit by a bus’ scenarios. One client who passed away owned four companies, and had only a single employee in one of them. After their death, it was an absolute minefield for everyone involved and took over a year to resolve.
We have the same planning challenges ourselves, of course. In particular, we have a small number of larger clients who have bespoke needs. So we have to think about how to cope if something were to happen to members of our team. It’s a struggle to find the time to get the necessary documents in place and updated. Perhaps this blog will be useful nudge for us, too!
How Merlin can help
To find out more about how we can help your succession planning, please contact us. Our clients say that it’s useful to have a numerate friend prodding their thinking, especially one who understands the issues. If you’re not already a client, please get in touch here. You’ll find us a good fit if you’re looking for an accountant as an investment – rather than just a cost.
