Succession planning for your business will help secure its future success
The future of a family business and the livelihood of its employees are too important to leave to chance.
Yet surprising findings from a recent survey show that over half of private business owners have not taken any active succession planning steps.
This research highlights that less than 30% of family businesses survive to the second generation; 12% to the third generation and only 3% to the fourth generation.
What often happens is that the grandparent builds the business, the next generation have their own ideas on its operation and, by the time it’s ready to be handed to the following generation they want to do something else with their lives and the business is lost.
The most successful family businesses are the result of years of effort and often sacrifice so it is unnerving, given the statistics above, to discover that succession planning is not given a higher priority.
Often in family businesses there is a direct contradiction between emotions for the family members and good business sense.
The owner wants to pass wealth to the next generation, but also wants the business to continue as a viable commercial entity and provide a future for their employees.
Treating all of your children equally may be your ideal as a parent but could be disastrous for your business.
In many businesses some family members may be actively engaged in the business while some are not, the former resenting sharing profits with the latter and the latter being aggrieved by the decisions made by the former.
Inter family disputes can be some of the most acrimonious where emotions rather than business logic drive the agenda.
Succession as a result of planning, consultation and strategy must be preferred to succession through crisis!
So the task faced by the family business proprietor can be daunting if faced alone, not least where there is a reluctance to relinquish any control.
However if you find yourself in this position you are not alone. Your lawyer, accountant and financial adviser, as well as industry specific business advisers, working with you as a team will assist you in your planning.
As a preliminary you need to identify your priorities and your strategy will revolve around three key areas:
1. Management – who is/ are the best people to manage the business in the future?
2. Ownership – who will own the business? Will this be outright or via trust?
3. Tax consequences
Other key areas that also need to be considered as part of the succession planning are updating Wills and putting in place a lasting power of attorney.
Wills need to ensure they reflect the succession wishes, and appoint business executors specifically tasked with guiding the business through the succession stages.
The death of the owner of a business who does not have a valid and up to date Will could lead to a disastrous distribution of their Estate under an intestacy distribution, which may well result in a forced sale of the business.
The key to successful business succession planning, whether it is for retirement or in the event of incapacity or death, is to start talking to your advisory team as early as possible.
Stuart Hamilton has extensive experience in this area and can be contacted on: 0843 244 7920 or email: firstname.lastname@example.org