Family business succession planning: don’t bury your head in the sand!

This article was first published in South West Business Insider magazine.

Having spent most of my career advising owner-managers, I firmly believe they are one of the backbones of our society, providing employment and boosting the local economy, especially in out of town areas.

Running such a business successfully requires keeping on top of multiple challenges at once. The principal aim may be wealth preservation for the extended family, but this only happens if all the foundations beneath it are in place. This is borne out by the fact that fewer than 10% of family businesses survive to the third generation, while a similar proportion of owners are financially independent from their business when they retire.

For family-owned businesses, value can be about far more than numbers. Directors have an emotional, practical and financial relationship with a wider group of stakeholders than the immediate family members involved in running the business. They are generally committed to protecting the reputation they have built over many years, as well as enhancing long-term relationships with employees, suppliers, key customers and the communities where they live and work.

One advantage family businesses have is their ability to respond quickly to opportunities and challenges. With often limited external shareholders to answer to, they can be flexible in their decision-making and take a longer term view. They are more likely to self-finance investment instead of borrowing, which also makes them more adaptable.

Succession plans

For all their strengths, one area in which many family businesses fall down is a lack of succession plans. This might be because the head is reluctant to admit that he or she will one day need to step down, or because there is too much trust in the wider family to work this out when it becomes necessary. In fact, because of close relationships and long histories, it is of utmost importance for family firms to have a strong succession plan in place.

What happens when we’re gone? We all have an instinct to ignore things that make us feel uncomfortable, perhaps telling ourselves ‘It won’t happen to me’ and ‘People know what I would want to do’.

Planning for the worst and ensuring sufficient, well ordered structures are in place is essential to mitigate the most devastating risks. This extends beyond simply having insurance to thinking strategically about what might happen to the ownership:

• Who gains control?
• And more importantly, who should have control?
• How will the business trade?
• What could the impact be on profits, creditors and future trading?

We work with clients on a whole host of topics, including long and short term strategies to grow their business, involving all family members in key decision-making and considering ways to safeguard and build family wealth.

Every family business is unique and each requires different solutions to the challenges they face. Our structured approach provides family and owner-managed businesses with understanding, support and guidance to help them succeed today and in the future.

Find out more about our specialist family business advisers.