23. Family Business – Sell On, Pass On, Carry On or Die!

The term ‘family business’ often conjures up images of a small, locally run enterprise, traditionally in the towns and villages of mid 20th century middle England – perhaps a family building firm or bakery. Family business doesn’t always have to mean small however; think JCB, think Tesco even.

And Wal-Mart, with approximately £287bn of annual revenues is another, not so small, family business, and whilst this is at the extreme end of the scale, succession planning can present challenges for family businesses of all sizes.

Keeping it in the family

Let’s put it in perspective – family owned businesses represent two thirds of all private sector enterprises in the UK, provide over 50% of all non-government employment and contribute almost 25% of UK GDP. The importance of family business to the UK is clear to see – but the future of such enterprises may be under threat.

According to the 2012 PwC Family Business Survey, less than half of the 2000 family run business owners they questioned plan to pass the business on to their offspring.

At an individual level, taking control of and responsibility for the family business has huge benefits – but it is balanced by obstacles such as a lack of appetite to take on the business, the fear of family disputes, the responsibility of ensuring the sustainability of the family business. These can be very real concerns for owners of such enterprises.

A defined succession plan should form a key part of any business plan put in place by those running a family business. One of the key focuses for such a plan must be just how the business will be passed on when the time comes; and it must take full account of the needs of both the existing (and exiting) business owners and the new blood taking over. One thing the royal family seem to have got right is planning the succession very early on!

Succession planning – 4 key considerations:

There are a number of steps that owners of a family business can take to ensure a smooth transition when passing on the business, whether the ownership is to be kept in the family or not. Below we highlight four key considerations when succession planning.

  1. Ensure there is a current Family Charter (or Constitution) which sets out how people are expected to behave, training of successors and the regularity of meetings and recognises the respective interests of the family, the owners (who may be different) and the management (which may include non-family).
  2. Review the business objectives and business finances – by regularly updating where you want the business to be, you will be better placed to determine who is best to take the business on that journey.
  3. Build and maintain a support network – whether or not the business is kept within the family, a strong support network of trusted professionals (and the most valued tend to be the business’ accountant and its business adviser) is vital to ensure the expectations of all parties are heard and managed and to give the new owner the best possible chance of success.
  4. Draw up a transition plan – determining how the business will pass from old to new owners is critical and having a plan in place early on can make the whole process much easier, for both the passing of the business to a family member and for an exit via sale.

For owners of a family business, passing the business on can be an emotionally difficult time: with a well thought out succession plan, identifying the right person to take the reins will provide much comfort when the time comes to pass the business on.

To find out more about succession planning, or if you would like to discuss any of the topics covered above further with Tectona Partnership, please contact Mark Nicholls on 07818 407061.

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