We recently published our Family Business Insight for 2017 and one of the key highlights was that 38% of businesses are now surviving into 2nd generation and the same number, 38%, plan to pass their businesses on directly to family members. Coincidence?… probably not.
Businesses which proactively plan a succession strategy, involving and engaging with family members, will almost certainly have a far better chance of survival than those that are forced into an unwanted or unexpected strategy.
There are many different issues that family business owners must consider when developing their succession plans. Different generations may have different ideologies and goals or may want to take the business in a different direction. Often, those members leaving are still reliant on the business for their income.
One of the key aspects of any business is control and all too often the current owners try to hang on for too long, damaging, not only to the business, but also their family relationships. So, the first question is “Are you ready to relinquish control?” quickly followed by “When will you be ready to allow your successor to make all the key decisions?”. To be successful the succession should be initiated and driven by the outgoing owner.
The next key area is the successors, and whether they are capable.
The critical driver here is to approach the decision purely from a business perspective. Put family ties to one side and ask, honestly, would I sell this business to these people, given their experience and skill sets. If the answer is “No”, then you risk jeopardising the entire business. Has the question been asked do they actually want to take over the running of the business or do they have other career aspirations?
What would happen if they needed to run the company today? The unexpected death of the owner often plunges businesses into crisis as they are unprepared. Succession planning shouldn’t start when the owners decide they want to retire or sell, it should be an integral part of the business strategy from an early stage.
Financial security is key to all of us and it is often the case that those leaving the business will remain dependent on it to provide an ongoing income, possibly at a reduced level. What are the implications of this, especially if the new owners have taken on debt to pay for the business? Are the profits sufficient to service the debt and provide a level of income to those that have left and still be a viable business? Structuring the correct financial package to ensure that all parties are satisfied is absolutely key and should be one of the very first things discussed. Working with a team of trusted advisors such as ourselves and lawyers will enable the correct and most financially beneficial structure to be discussed and implemented from a very early stage.
Above all, communication and planning are the key. Is there an assumption that the children will want to work in the business but in reality they don’t but have never had the heart to say so? Difficult conversations need to be had early, to ensure that everyone wants the same outcome, honesty and transparency coupled with sound planning and financial advice should ensure a smooth and successful transition for everyone involved.
Our trusted corporate finance team can bring their experience, original thinking and proactive approach to advise and support you to find the right way forward for you and your business.
