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5 Ways to Ensure Efficient Succession Planning in Family Businesses

Martin Kennedy

Succession Planning

| April 5th 2016

More articles by Martin Kennedy
5 Ways to Ensure Efficient Succession Planning in Family Businesses

5 Ways to Ensure Efficient Succession Planning in Family Businesses

Many family business owners dream of watching their empires flourish at hands of future generations. Yet in reality, a majority of businesses won’t make a successful first transition, and only a handful ever survive into a third generation.

Fortunately, you can significantly swing the odds in your favour by thinking ahead and acting early. Take action on these five points for a successful transition and a happy retirement.

1 Start now

Whether your exit from the family business is imminent or still seems like a far-off eventuality, there are many reasons to start building a succession plan right away.

It gives the opportunity to formulate thorough strategies, disputes can be resolved before they’re time-critical, and family members can prepare for future roles.

Tough decisions can be greatly exacerbated when they involve family members, but failing to act now won’t make them any easier.

Having a plan in place also leaves the business much more secure should the succession occur earlier than expected, in the event of any unforeseen circumstances.

2 Agree on a vision

As with any aspect of business, an effective succession plan requires everybody pulling in the same direction. That’s only possible if it’s clearly sign-posted.

You’ll need to decide which family member is given which role, whether these are active, day-to-day roles or otherwise. And the big decision: will jobs, votes and remuneration be handed out equally, or on merit?

But beyond that, it’s crucial to define the business ethos, and what goals it is working towards. These values will help provide the framework for all future decision-making.

It’s also important to decide upon a process of governance and a method of dispute resolution. Having all this in black and white and, better still, agreed upon by interested parties in advance, will reduce the chance of fallouts.

3 Empower your staff

The ideal succession plan will see the next generation ready and able to take the reins the day of the handover. This can take years of planning.

As a minimum, you and your senior staff should mentor the next generation before they make the step up. It may also be beneficial to invest in formal training, and many family businesses find it useful to let individuals gain experience in other companies, returning with a wider perspective and fresh insight.

Not only will fully equipping the next generation improve chances of success, but it will also help family members gain credibility among non-family employees and stakeholders.

4 Consider tax implications

Handing over your business to future generations could bring serious inheritance tax implications. However, in many cases, Business Property Relief can reduce this burden by 50% or 100% on items such as shares, land, buildings and machinery.

In other instances, you may want to fund your retirement by selling up, which leaves you open to the prospect of Capital Gains Tax. Again, there are various types of relief available here, too.

Whichever route you choose, ensure you protect your own financial stake and help secure the future of the business by working with an advisor to ensure a tax-efficient succession.

5 When the time comes, let go

Walking away from your business can be especially hard when you still feel a strong connection, more so when family members remain at the helm.

However, while it’s useful to be available in an advisory capacity, it’s also imperative to trust in the succession plan put into place. Once the handover is complete, allow your successors to flourish. Don’t undermine the plan by lingering afterwards and trying to involve yourself in managerial decisions.

After all, your time is better spent travelling the world, picking up new hobbies and living out your retirement dreams. Go and enjoy yourself.

Whether you have a plan in place or you’re taking your first steps, contact the expert Corporate Finance team at Begbies Traynor Group to ensure your business enjoys the most smooth and efficient succession possible.

Martin Kennedy

About the author

Martin Kennedy

Director

Meet our Team of Experts

Martin has nearly 20 years’ corporate finance experience specialising in advising owner managed businesses. Martin has considerable experience advising on business sales as well as management buy-outs and acquisitions across a wide range of sectors and deal sizes.

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