Succession planning: Securing the future of your family business

Many business owners find themselves occupied with day-to-day operational functions, trying to adapt and thrive while navigating the complexities of the modern digital world.

It is, however, equally important that business owners also dedicate time to plan for the future when the current owners and leaders are no longer at the helm.

The importance of succession planning

Succession planning is a critical process for the longevity and sustainability of any business. The identity and values of the family are often interwoven into the business and without a clear succession plan, uncertainty and conflict can arise; potentially leading to a dissolution of the business at the extreme.

A well-thought-out succession plan demonstrates foresight and provides stability, maintaining the confidence of employees, customers, and investors. Stakeholders need to know that the business has a roadmap for the future. It is important to recognise that the right decision may be for the business to be sold, and this will then lead to an appropriate sale process being initiated.

Identifying and preparing successors

If the business is to be retained, business owners need to identify and prepare those who will be their successors. Not all family members may be interested, nor have the necessary skills or experience to lead the business into the future and this can present challenges.

Overcoming succession planning challenges

To overcome these challenges, business owners can do a couple of things. Firstly, they should start the succession planning process early. This allows time to identify successors, provide training and gradually introduce them to their future roles.

Secondly, proceed in a manner which builds trust – open communication is vital. This enables family members and management to express their interests and raise concerns that will contribute toward informed decisions regarding the future of the business.

Thirdly, external advice should be sought from professional advisers who have experience in business succession planning. This can be particularly beneficial as advisers can offer valuable, objective insights, help navigate the emotional factors, and outline options which may assist such as the use of Trusts or establishing appropriate incentive arrangements for key family members or staff.

Formalising the succession plan

Finally, it will be important to formalise the business succession plan. A formal plan serves as a guide for the business and will be a useful strategic document which can be referred to when making important decisions.

The complexity of succession planning

Putting a proper plan in place inevitably takes time; the process can be complex, but it is vital to successful business continuity. The process can include valuing the business, reviewing the current business structure and ownership and reorganising this if necessary. Advance planning also enables preparation for unexpected events such as illness or death of an owner or key personnel.

Inheritance tax considerations

Data from HM Revenue and Customs published in May 2024 showed Inheritance Tax receipts for April 2024 at £0.7 billion, being £85 million higher compared to the same period last year.

As IHT receipts continue to increase each year and death is inevitable, this should be factored into succession planning. Maximising reliefs to mitigate IHT liabilities allows more wealth to pass to family members that might otherwise pass to HM Revenue and Customs.

Conclusion

Succession planning is not just about choosing the next leader; it is about securing the future of the business and preserving its legacy and the process should be approached with the same level of seriousness and dedication as any other critical business strategy. With careful planning and open communication, family businesses can look forward to a bright future.