Passing your business to a family member can sound simple, but this option will still involve a number of financial and legal complexities. Not to mention an emotional aspect to this type of transaction.
Succession planning involves the transition of part, or all, of your business to members of your family. If this is the route you want to take, then you need to identify candidates from the next generation. This means choosing from your children or wider family. The emotional dynamic of this selection process shouldn’t be underestimated, and independent advice and perspective can be a great help here.
The next generation will have the benefit of being mentored by you and learning valuable skills over the years. By being thoroughly trained and thus proving their capabilities, it leaves you knowing who is best suited to a particular role and gives confidence that the business and your legacy will be in safe hands.
Engaging with the next generation and careful succession planning means you can protect the business from any sudden or unexpected change. Training the next generation also means less time and money will be spent on senior recruitment in your management team. For family members, it provides career and financial opportunities to them that may not be available elsewhere.
Transferring a business to the next generation can also achieve several goals that you may wish to achieve, including continuity for staff, preserving brand integrity and reputation. This creates clarity and reassures stakeholders such as employees, investors, and loyal customers that they’re still in good hands. Succession also continues to provide a sense of identity to the business following its traditions and values.
One of the key areas to consider will centre around who you would like to lead the company in the future. Do you have a successor in the family that has the necessary skills, experience or desire to take on the responsibilities of managing the business? If not, there are a number of other options available such as transition to employees, a management buy out or even a trade sale to a third party.
As part of the transfer of ownership and management when transferring to the next generation there are a number of tax implications, so it is important to seek professional advice to minimize any tax liabilities.
Consider whether your current business structure is appropriate for the next generation. This may involve restructuring the business to make it more efficient or to facilitate the transition to the next generation.
Communication on the timeline of succession with all stakeholders is important. During the transition there will be uncertainty and this is likely to be a distraction for you and your management team.
It’s never too early to start thinking about family succession planning. The sooner you start thinking about the future, the easier it will be to make appropriate decisions and put the right structures in place, so that it minimises the disruption to the business. Whether you wish to completely exit or reduce your hours/involvement, it’s also important to consider how each role will impact future growth.
Having an external, unbiased opinion can certainly help with achieving your goals, so it’s a good idea to seek advice. There can be tax and business implications when it comes to succession, specifically around gifting, so again, advice is advised.
If you’d like to know more about family business succession planning and how our team of deal advisory, tax and financial planning advisors can assist, please use the contact form below.
Our deal advisory, tax and financial planning advisors can support you through all stages of transferring your business to family members. We will work with you to:
In this series, Natalie Wright and her guests delve further into the transition from NowGen to NextGen, exploring the personal and practical aspects of handing over the ownership and the management of the family business, as well as the challenges and opportunities that change can bring.
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We publish articles on all aspects of finance and business management with a focus on what is topical and relevant to privately owned businesses.
In this series, Natalie Wright and her guests delve further into the transition from NowGen to NextGen, exploring the personal and practical aspects of handing over the ownership and the management of the family business, as well as the challenges and opportunities that change can bring.
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