The family way?
Succession planning should be a priority for every family business.
Many of us look forward to the day when we can finally retire from work; but it can also be an anxious time. Whether planned and much anticipated, or hastened through failing health or redundancy, a retirement that is well funded is crucial to enjoying life after work.
And if you are a business owner, the added complication of what happens to the business once you’ve hung up your boots is another hurdle to overcome. What are your plans for the future of the business? If you are no longer at the helm, will your business fold and cease trading? Will you sell it as a ‘going concern’?
Will you transfer ownership? Transferring businesses to family members brings relationships into the equation, adding the complication of mixing the personal with the financial and the dilemma of balancing the head with the heart.
- 88% of current family business owners believe the same family – or families – will control their business in five years, but succession statistics undermine this belief.
- Only 30% of family and businesses survive into the second generation, 12% are still viable into the third generation, and only 3% of all family businesses operate into the fourth generation or beyond.
- Research indicates that family business failures can essentially be traced to one factor: a lack of succession planning.
Source: www.familybusinessinstitute.com, 2014
An effective business succession plan can help rationalise the process, and establish logical steps to guide you through the fundamental issues of management, ownership and taxation as smoothly and efficiently as possible. Of course, management and ownership are not necessarily the same; for example, one child may be appointed to run or manage the business, but you may elect to allocate equal shares of ownership to several children.
Weighing up the best possible outcome for you, your family and the business is not an easy process, but getting the succession planning process underway will help ensure a smoother transition from one generation to another.
Early options: It’s never too early to start thinking about your future transition out of the business, so incorporating a succession plan into your overall corporate strategy at the earliest opportunity is good practice. The more time you have to consider your options, the smoother the exit should be.
Share thoughts: Having an open dialogue with family members should ensure all interested parties are involved in the decision-making process, and personal feelings are aired and considered. This can help avoid disputes or animosity later down the line.
Be realistic: Examine the strengths and weaknesses of all possible successors as objectively as possible. It may even be that there are no family members capable of, or interested in, continuing the business and selling it may be the best option for all concerned – including the business itself.
Seek advice: Seeking the guidance of a professional adviser can help you take a pragmatic approach to the whole process. This should also ensure that you position your finances in the most efficient way to minimise the impact of taxation eroding your exit fund. And, of course, an adviser will also provide guidance on optimising the investment potential of any sale proceeds.
A good succession plan can ensure that you have the funds you need to retire and that the business you have built continues to thrive in the hands of the next generation.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested. The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.