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Succession is arguably the most important decision you\u2019ll face as a family business <\/a>owner. Getting it right will help ensure your firm\u2019s longevity; getting it wrong could put it all at risk.<\/p>\n In our first blog in this series<\/a>, we considered how to decide which of your sons or daughters is capable of running your business. And we looked at the importance of preparing them to do so.<\/p>\n So come the time for transition, how do you go about handing over the keys to the kingdom?<\/p>\n You\u2019ve made a clear choice about which of your offspring are best placed to carry on the family business.<\/p>\n Your transition plan has seen them work in the business for some time, experience every part of its operations, and take on senior positions when ready. You may even have started to step back, and let them begin to take control.<\/p>\n This is the point at which you should be reviewing the operational and ownership structure of your company.<\/p>\n How are your firm\u2019s operations organized? Who will run which divisions? Who should own how much of the share capital \u2013 and how much will you retain? An external perspective is helpful when making these important \u2013 and tricky \u2013 judgements.<\/p>\n The above scenario is, of course, the ideal one. And with a bit of considered advice along the way, plenty of family businesses manage their transition in this way.<\/p>\n But given the unique challenges of running a family firm, there are many potential barriers to a smooth succession.<\/p>\n Firstly, despite all your hopes and plans, your offspring may lack the ability, or the inclination, to take over the business. This can be dispiriting, but if it happens, there are other options open to you, which we\u2019ll deal with in our next blog .<\/p>\n Then there is the issue of control. It can be difficult for founder generations to hand over their \u2018baby\u2019 \u2013 especially if the next generation intends significant changes. As the owner, you need to be mentally prepared to let go.<\/p>\n Finally, time can be the enemy. Putting succession planning on the backburner for too long can place the business at risk. You need to know who will take over the business some years ahead. This will give you time to put a development programme in place to fully equip your successor for the job.<\/p>\n Another crucial consideration is what to do if not all your sons and daughters will be involved in the business. If not properly handled, this could lead to tensions and power struggles \u2013 we\u2019ve even seen cases of sabotage.<\/p>\n So how do you ensure a fair distribution of the family wealth?<\/p>\n Every family is different, of course, so there\u2019s no one-size-fits-all solution to this situation. But in most cases, communication and compromise are the key.<\/p>\n The family stakeholders of a business generally fall into three groups: those who work in the business; those who don\u2019t; and at the centre of it all, the owners.<\/p>\n It\u2019s not uncommon for the needs and aspirations of these groups to conflict. But talking openly and honestly to each individual will help you to understand what they want, and to find a solution that\u2019s acceptable to all.<\/p>\n It will also help avoid some common pitfalls. Parents often give shares to their children, thinking that they\u2019re doing the right thing, when a different approach is needed.<\/p>\n Handing over a business obviously has major tax implications. And while it\u2019s vital to have the right tax strategy in place before transition, don\u2019t be tempted to let the tail wag the dog. Your business decisions should always be based on commercial merit, not on how much tax you can save.<\/p>\n That said, there are some important fiscal issues to keep in mind.<\/p>\n It can often be tax-efficient to gift a proportion of the company ownership to your successor(s). Of course, you may want to retain a proportion yourself, so that you can continue to receive an income from the firm you\u2019ve spent so much time building.<\/p>\n Many business owners assume that they\u2019ll benefit from 100% inheritance and capital gains tax relief when relinquishing the business. But that\u2019s not always the case. You need to check your tax position very carefully, and take advice on what to do.<\/p>\n When it comes to succession<\/a>, the most important advice anyone can give a family business <\/a>owner is: plan. Plan early, and plan ahead. Review your plans and keep them up to date. And seek expert advice where necessary. Remember \u2013 the unexpected could strike at any time. Transition is something you need to be ready for.<\/p>\n To discuss how Goodman Jones can help you to plan for succession at your family business, contact Larry Phillips<\/a><\/p>\n This is part of a series of blogs on family business<\/a> succession. If you\u2019d like to know when future instalments go live, please sign up for updates.<\/a><\/em><\/p>\nIn an ideal world<\/h2>\n
Succession derailers<\/h2>\n
Fair treatment<\/h2>\n
Tax planning<\/h2>\n
Think forward<\/h2>\n