Planning ahead – why succession planning matters

Planning ahead – why succession planning matters

Succession planning is one of those areas – much like writing a will – that people tend to put off. But with family businesses making up around 90% of the world’s companies, it’s an area that really shouldn’t be ignored.

A reluctance to confront the issue is perhaps understandable, as no-one likes to contemplate their own mortality. Planning for succession can be a highly emotional decision, particularly where competing interests are involved, and it can be difficult to take your hand off the tiller of a business you’ve built.

Key business responsibility

However, succession planning is a responsibility inherent in running a business. Certainly, in cases where employees are involved and customers and suppliers may be affected, plans for who will own, manage and run the firm really do matter.

There are, of course, different scenarios. For example, the entrepreneur looking to secure an exit may face very different pressures and have different motivations than a person who wants to pass their business to the next generation. The former, for example, has a finite timeline in mind for exit. In the latter case, unless spurred on by the onset of illness, the timing is more fluid. However, some of the decisions required will remain the same. What we would encourage any family business owner to do, is to think and plan ahead. The more in advance you do this, the better the outcome can be.

Practical steps

In very practical terms, instructing a lawyer to draw up or review a will is essential. As well as setting out plans for the disposal of your assets and outlining your wishes, this may act as a catalyst for deeper reflection on your long-term plans for the business. An accountant or tax adviser will be able to guide you through the Inheritance Tax implications associated with your plans. In the case of a business sale, we would encourage clients to look at the overall family wealth position and what you want to do with the sale proceeds – which may be received immediately or, in the case of an ‘earn out’, further down the line. Once again, an accountant or tax adviser may be able to help you consider issues such as Capital Gains Tax, deferral opportunities and tax efficient vehicles including pensions and ISAs.

A clear path?

When a business sale is not the plan, considering the ongoing management of the business is vital. Do you have a natural heir already groomed, is there a family member with the right experience to step in, or would someone from outside the family be best placed to succeed? Thinking about these issues over the long-term can also help make a stronger business today. For example, children may not want to join the family firm, which may change your objectives, or you may want them to spend time working elsewhere. Plus, it may be easier to attract talent if employees can see a clear progression opportunity – not one that’s stunted because they aren’t a family member.

It is these decisions, rather than the ones around tax and asset dispersal, that can be most difficult to talk about and make. This is when our deep relationships with clients can really make a difference, giving us an objectivity and understanding that can help provide a useful sounding board for your succession plans, while at the same time working closely with other professionals to help ensure appropriate financial arrangements are in place.

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