As the proud owner of a family business, you will take great pride in the fact that hard work and unfailing commitment have brought you’re the commercial success you now enjoy. Whether you’re running the village hardware store, a plumbing business or an accountancy practice, it can be tempting to think of it as ‘your’ company. But what happens when you’re no longer able to take the reins?
If you’re serious about keeping the business in the family, now is a good time to think about succession planning.That way, when you decide to retire or you pass away, the business will be in the best possible hands. And even though there can never be any guarantees to safeguard your company’s family ownership through the generations, making a succession plan is still the best way to ensure the smooth transition between family members.
According to ICAS, the best succession plans include 5 key elements:
- Putting in place competent stewardship
- Building a professional management board
- Writing an effective succession plan
- Inspiring the next generation
- Creating core family/brand values
According to ICAS, family businesses makeup 2/3 of the UK economy and more than half don’t have a succession plan. While handing over the family business to the next generation is something many business owners dream about, not putting an adequate plan into action can jeopardize the business’ future. Don’t leave it until the last minute to spring into action. Succession planning is a complex and lengthy process that needs proper consideration and due diligence.
Family Businesses May Need Outside Help
Compared to other enterprises, family businesses are a special case. Did you know that family SMEs don’t have to abide by the same legal governance rules as listed companies, meaning they often don’t bother with corporate governance codes and principles?
“Of course, there will be many family events and scenarios that must be addressed as the business grows. And it should go without saying that all decisions should be made from a point of reason, not emotion. But if family relationships get in the way of good business decision making, as they inevitably will at some point of other, engaging a neutral third party to help with business advice may be an excellent idea.” Oliver Spevack, FCCA ACA, OS Accounts
“With combined experience of over 60 years looking after SMEs, our partners are a safe pair of hands for your accountancy needs” is the kind of statement you want your professional business planning partner to say to you. Not only must you be able to trust them fully to keep the company’s finances and paperwork in meticulous order, but they should be a stabilizing force to steady the ship when the going gets rough.
Family Conflict and Succession Planning
A strong emotional attachment to your business may in fact stop you from thinking too far into the future. Maybe you can’t imagine anyone else taking over, maybe there’s no-one obvious in the family to take the job. Or perhaps you know all too well that there will be squabbles after you’ve gone, especially if you already have a successor in mind.
- A reluctance to let go is probably the number one factor in the failure of succession planning in a family firm. You may be afraid of stepping down or losing control or status, even if you’re granted a consultancy role as former head of the business.
- A reluctance by the success or to take over is equally detrimental to the future success of the business.Unless the new leader fully commits to his/her roles and responsibilities, the chances of business failure are much higher.
- It is dangerous to confuse commitment and competency. Simply because a family member has readily agreed to take over the family firm, it doesn’t mean that they have the right qualifications or person spec for the job.
- Watch out for the generation gap. A younger, probably more dynamic leader may have very different ideas compared to the old guard. Change can be a good and a bad thing, and the likelihood of the old and new leaders clashing over the company’s direction is substantial.
- Nepotism and sibling rivalry can be truly disruptive forces when it comes to succession planning. While engendering a shared sense of vision among the family is essential, trust and open communications are imperative to establish clarity about share distribution and allocated roles.
Don’t Put Off Planning
Whether or not you are making a succession plan under calm and harmonious conditions, it’s a lengthy and potentially difficult process that should be embarked on sooner rather than later.
Making rash last-minute decisions may not be in the best interest of the company and could have a negative impact on the business. Allowing enough time is essential for resolving all the issues, including maximizing tax efficiency and other commercial opportunities and, of course, mentoring the chosen successor.
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