Business Succession: Step by Step
There is an increasing emphasis on family-run businesses in the UK economy. Following a period in which control of many family-owned firms was given up in favour of buyouts, the recent recession seems to have convinced many people that the family knows best again.
But, while family run businesses have their benefits, they are also rife with complications. The task of arranging family succession – that is, the act of actually passing the reins onto your chosen family member – can be an arduous one, and can often take years. So, if you are considering business succession, how should you be going about it?
Consider your optionsTo begin with, you should not rush into family succession. Instead, treat it as one of a range of exit options that might also include selling the firm, floating it, or closing it. It is entirely understandable that you wish to keep your business in the family, particularly if you have built it up yourself. But you should not blind yourself to other, potentially better, alternatives.
Identify a successorIdentifying the person that should take over the reins is perhaps the most important element of the process. It is vital for the long-term stability of the firm that you find the right successor.
In many cases a business owner has a successor in mind from a very early stage. But, while this might make the process simpler, it can mean that you miss out on a more suitable candidate. You should always retain an open mind when it comes to your choice of successor; indeed, the right person for the job might not actually be a family member.
It is also important to remember that favouring a family member, at the expense of another, better qualified family member, can cause significant friction within the firm. You must therefore ensure that you manage this choice sensitively.
Determine your futureIt is only natural that many entrepreneurs find it difficult to completely let go of the business that they have developed. But, as well as accepting that you will no longer be running the business on a day-to-day basis, you should also make sure that you determine in writing your future involvement in the firm.
This might seem unnecessary, but it can help to avoid conflict with your successor in the future. It is particularly important to come to a written agreement if you stand to have any future financial involvement with the business – for example if you intend to retain rights to a percentage of the profits.
Retain contingenciesIt is always important to develop contingencies in case things do not go to plan. For example, what if your intended successor decides that they do not want to take on the role? You should have a backup plan in place for eventualities of this sort.
An experienced business succession manager will be able to help you draw up contingencies, as well as an overarching plan for the hand-over process. Although it may not always be necessary to enlist the services of such an individual, you may find it useful to at least have an initial meeting – not least because they will also give you guidance on the tax implications of your succession.
Succession planning often begins more than a decade before the actual hand-over. Although this sort of timescale may be impractical in some circumstances, you should always leave as much time as possible to come to a decision and allow your successor to acquaint themselves with the role. Good luck!