Last Updated on 4.8.22 by Michael Smoult
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What is Succession Planning?
Getting succession planning right is critical for your family business. With the close-knit nature of a family business it’s no surprise that when surveyed, 88% of family businesses feel their family will still be in control of the business in 5 years’ time.
With only 30% of family businesses surviving into the 2nd generation, effective succession planning is key to ensuring your business remains viable through future generations.
Below are 5 key considerations we believe family business owners should consider before putting a succession plan in place…
Be Inclusive
In any successful business (or family for that matter) communication is key. Opening a dialogue with your family members on your intention to begin a succession plan is a vital first step.
Now, this doesn’t necessarily mean including all related members of staff from top to bottom of the business, but it is advisable to include anybody with a direct economic interest in the business or has long-term experience or knowledge of the business as they may have valuable contributions to make during the process.
This also provides a valuable opportunity to discuss the collective goals and objectives for the business moving forward.
Be Realistic
Within a family business, relationships can be complex. Therefore it can be difficult to make business decisions objectively. For example, you may want your firstborn son/daughter to one day be at the helm of the business, but do they have the adequate experience, skills or even the desire to fulfil the role for the long-term future of the business?
Many family businesses fear an external hire could compromise the culture of the business, when in fact the culture of the business could be the main attraction for those external hires.
External hires bring in experience and skills from other companies and industries. They can also provide an invaluable objective perspective on the business.
Be Proactive
If you have a successor for a particular position in mind, we recommend setting out adequate training and activities tailored towards their impending new role. This will allow for a much smoother transition, especially into highly skilled senior or management positions.
On the topic of proactivity, be sure to document the process. Some of the topics covered in succession planning can be sensitive, therefore many family businesses are prone to a more informal approach with little more than a verbal agreement between family members. Maintaining a formal paper trail ensures your desired succession plan is followed accordingly.
Don’t Delay
When it comes to succession planning, there is no better time than the present. Its human nature to avoid something until it needs to be done, but succession planning is not just for retirement. It is important to plan for the unexpected, this includes sudden mental incapacity or death.
Without a succession plan in place, if tragedy should strike, your business assets will be passed on in accordance with your will. This can inadvertently lead to shares being passed down to family members who aren’t directly involved in the business as well as your significant other, who may not be considered by the rest of the family as a legitimate blood relative.
These inheriting family members are then free to take an influential role within the business (perhaps without the relevant skills or experience) or even choose to sell it for immediate gain, Compromising the ownership and future viability of the business.
Don’t Be Afraid to Seek Outside Help
There’s a lot to consider when planning for succession, from the day-to-day running of the business to the re-allocation of shares and various other assets. It is a powerful, long-lasting document which can contribute greatly to your business’s future success as well as protect your legacy.
Therefore, we strongly advise seeking external advice. Consulting with an external party will provide you with impartial guidance on what is best for you and your business.
At Gorvins, we specialise in family businesses. If you are considering succession planning, give one of our family business solicitors a call on 0161 930 5151 or send an email to enquiries@gorvins.com.
Michael Smoult
Partner & Head of Wills, Trusts & Probate, Wills, Trusts & Probate
