Machins Solicitors LLP
Leading Solicitors in Bedfordshire, Hertfordshire & Buckinghamshire
  • Luton: 01582 514000
  • Berkhamsted: 01442 872311
  • Hemel Hempstead: 01442 345047

Make sure your family business has a succession plan

Posted: 13th January 2015   In: Corporate Commercial

Handing over a family business to the next generation can prove surprisingly difficult for many people.

Research by the Family Business Place website suggested the issue can be so challenging that 62% of families would consider selling their business because of the difficulties of passing it on to family members. Another 55% said they felt succession issues could be a barrier to future success.

There can, of course, be concerns, especially when several family members may be involved. Difficult issues may arise such as who in the next generation should be in charge…do they have the necessary skills and enthusiasm to succeed…do they even want to take over…how should the succession be financed?

These questions can present difficulties but they can be overcome with a little forethought.

To ensure a smooth succession it’s vital to start planning several years ahead of your target retirement date. The first step is to hold meetings with those who will run the business when you leave so you can agree an exit strategy.

This could involve introducing a governance policy involving those who are going to take over. This would outline how company decisions should be taken and how disagreements should be resolved. Ideally, this policy should be in place before you leave so that everyone gets used to the new decision making process while you are still there to iron out any teething troubles.

There will also be several other matters to consider.

If you own a large share of the business, your successors may need to raise money to buy you out.

It may be that you agree to sell your shares back over several years so the firm’s finances aren’t put under too much pressure all at once. There could be tax implications so professional advice should be sought.

If you own the business premises, you will need to decide whether to sell or lease them back to the firm.

It’s also important that those who remain in the business consider how they’ll get by without you. It may be that your expertise can be passed on to the remaining directors, or they may have to replace you. In that case, a successor should be chosen before you leave.

If you have built up a close relationship with key customers then you should arrange for them to meet the other directors so trust can be developed and continuity assured.

Some entrepreneurs find it difficult emotionally to leave a business they have built up from scratch. If you feel that way then you might consider staying on as a part time consultant. This would provide stability for the firm and reassurance for its customers.

Throughout the succession planning process it’s important to get advice from your accountant and solicitor, and possibly your bank manager. Some people may worry that they are taking too much out of the business making it difficult for the next generation to succeed. On the other hand, those taking over may feel guilty that they aren’t paying their parents enough. Independent professional advice can ensure that the agreement is fair to everyone.

Please contact Sing Li about the issues raised in this article or any aspect of succession planning.

Posted by: Sing Li
Corporate Commercial
Luton Office