Business Succession Planning for Professional groups

There exists among some members of professional groups such as lawyers, dentists and medical practitioners an ambivalent attitude toward succession planning. It's not unlike the sentiment many people have toward preparing their Estate Plans. They know a Will is important. They know it will make life easier for their family. Yet they postpone it (intentionally or subconsciously) because the act of preparing one makes them uncomfortable.

"Having a succession plan in place can literally save a business," asserts Brett Davies, Partner at Brett Davies Lawyers. "Without one, often the only option is to liquidate the business when the principal retires or dies. In that event, it's unlikely that the business is valued fully.

According to Mr Davies, it is often easier for a larger business to address succession issues since, because of their size, a sound management system is most likely in place. The same is true for professional firm. The preparing of a plan frequently gives firm owners the focus they may otherwise lack. "It makes them think about where they are trying to go and how to get there. The resulting plan may not only make the business more successful, it can ensure its continued existence," says Mr Davies.

Succession planning can help your firm to:

Cultivate existing Staff as future owners.
Manage diversity by developing the leadership potential of women and minorities.
Shorten learning curves for future leaders to meet a changing market.
Increase commitment and loyalty.
Shift from job progression to job expansion.
Start becoming a more learned organization.
Widen the scope of competencies for your business.
Create new roles to manage new business and continually grow departments and services.
Survive in a global marketing and performance environment.

Getting started

Professional practice managers should meet with the equity owners to identify critical management positions, future vacancies in those position and managers with the potential to fill those vacancies.

Before you implement any succession plan - identify real issues in your firm by seeking feedback from partners on their attitudes and expectations.

Implementation involves nine steps.

Determine whether all partners are committed.
Obtain partners' commitment.
Draft policy statement for review by owners and board.
Select senior management to oversee the succession planning. The committee should represent all departments and have authority to make decisions.
Develop a proposal for review by partners/managers. Include realistic goals you can accomplish the firm year.
Develop simple forms and instructions.
Identify training needs and develop training programs.
Launch the process.
Evaluate and audit the process on a regular basis.

What doesn't work

Mr Davies suggests that the following mistakes can derail your succession plan.

Keeping the plan a secret.
Underestimating your in-house talent.
Being narrow-minded.
Focusing only on hard skills.
Failing to offer the right training and development.
Expecting prospects to identify themselves as future leaders.
Failing to hold owner accountable for the planning.
Considering only upward succession.
Developing a one-size-fits-all program.

Davies outlines 5 main steps necessary to formulate a succession plan:

1 Develop a strong management team. Davies says that key managers need to know all about the firm's services and the importance of client relationships. Promising associates and junior partners need to understand the meaning of ownership and the responsibilities that go along with that.

2 Make sound capital investments. "Invest in high-quality equipment, machinery and personnel rather than draining the firm of its financial assets every year," advises Davies.

3 Understand the firm's competitive advantages and disadvantages (strong client retention rates, slow new client intake).

4 Work with an accountant to help determine the financial value of the business.

5 Determine how to implement the succession plan. "Shares or interest in the business can be given as 'gifts' or sold over a period of time and life insurance can be used to provide liquidity for trauma events, Total & Permanent Disability and death," says Davies.

6 Tax issues must also be considered.

The length of time it takes to implement a succession plan depends on the complexity of the business and whether any conflicts exist. "In a family firm, the principal may be unwilling to relinquish control," Davies points out. "When this happens, I try to explain that if the individual wants a successful exit strategy and a comfortable retirement, all of the important issues are addressed - and the sooner, the better."

In the case of larger firms with two, three or more principal owners, the succession plan can be as simple as a Business Succession Plan. "The problem for larger organisations, in the absence of a plan, is that the remaining principals must deal with an estate and heirs when one of them dies," explains Davies.

"When succession planning works, the principals liquidate their interests over a period of time (or sometimes in a lump sum), and the business continues and thrives," says Davies. "Failure to plan can result in business failure or forced liquidation."

The optimal time to create a succession plan varies with the type of business. "If more than one owner is involved, the plan should be drafted when the firm is created" advises Davies. "As the business grows, the agreement should be reviewed and modified as appropriate. In the case of one owner, it's best to wait until the business is established."

Owners of both large and small firms should work on their succession plan with outside advisers who specialise in business and corporate law. "Advisers and Tax Lawyers who focus in these areas understand how businesses work, how they survive and the measures that can be taken to help ensure that". says Davies.