a Business Succession planning helps to ensure that your family business, startup or any other self-employed enterprise If you or other bosses or leaders exit, retire, die or become suddenly or naturally incapacitated while you run, you will continue to operate successfully. It is a process of identifying those occupying key positions and finding their replacements so that it can provide a smooth transition from one generation to another without affecting the flow. estate or operation.
is it different from estate planning,
As per the Indian succession laws, property and assets acquired from a business are equally distributed among the legal heirs. So why should a business need a succession plan? While an estate plan is a way to ease the transition of personal assets to legal heirs or preferred beneficiaries to reduce disputes, a business succession plan ensures the longevity and profitable continuity of the business in such a way that it provides wealth to the owners. Keep doing it for a long time in the future.
Is this only for large businesses?
No, it is not just for large, listed companies or family-run businesses, as is the case with most businesses in India, but for any enterprise or set-up that employs people and generates wealth. Even if it is small. These may include manufacturing businesses, service providers, shops, restaurants, factories, professional law and architectural firms, production houses, etc. These can have various structures such as proprietorships, professional firms, limited liability partnerships, private limited companies, public companies, etc. ,
“Earlier, the entire family ran the show, with the next head of the family taking over as the heir, and it was followed or accepted by all the members,” says Raj Lakhotia, founder of Dillsville. “Today, this can lead to prolonged controversy and loss of reputation, as the family deploys its efforts in fighting lawsuits rather than focusing on business,” he says.
Furthermore, today’s nuclear families and fewer children mean that children do not want to be involved in family startups or businesses, and instead follow their own passions or interests. For parents or owners who do not want to liquidate their business or sell it because there is no one to run it after their demise, it is important to have a succession plan so that they can identify existing employees or professionals from the outside. Can you Run it according to their dream or vision.
Ravi Kumar, a Mumbai-based lawyer specializing in succession planning, agrees. “In the MSME and SME segment, succession planning lacks a formal process as continuity is ensured by the promoter family members. Since these companies are promoter-centric, the inherent risks are very high if there is no succession plan and the next generation of promoters are not interested in the business,” he says.
Read also:
7 Steps to Creating a Succession Plan for Your Business
What are the benefits of succession planning?
“One of the most disruptive things for a company is the sudden need to change the leader. Without a defined plan, the departure of a leader can create confusion and risk to the stability of an organization,” says Lakhotia. Planning mitigates this risk.
Secondly, it helps in maintaining the trust and confidence of the stakeholders, as well as protects the interest of lenders and creditors. Business can die due to lack of direction if planning is not done in tough times.
In the case of small businesses or professional services, the plan protects and preserves its goodwill and value, helping the family receive regular royalties or dividends.
How should one go about this?
The process of succession planning should not begin when the owner is in the late stages of his career or is ill, but much earlier.
Start by identifying where the business should be headed and the people who will achieve it. Talk to these people whether they are family members or outsiders, and if they agree, train them so that they are ready for a smooth transition when necessary. Execute the plan through a trial run to find any shortcomings and shortcomings so that when you or other leaders are not around, the business can operate without a hitch.
Lastly, all legal documents need to be signed and executed, and it is best to hire professionals such as lawyers, tax experts and chartered accountants to ensure they comply with the relevant regulations.