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Succession planning tips for family businesses

You’ve worked hard to build your company and, when you come to the end of your business career, you have a choice: sell the business or control your income and wealth through retirement and passing the business on into future generations.

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Even if you're a long way off retirement, find out why it pays to start planning for the future now. Germany's ‘Mittlestand' companies – the millions of family owned small and medium-sized companies that form the backbone of their booming economy – are proof of how investing in future generations can create a rich, innovative family legacy of benefit not just to owners but to the country as a whole.

Releasing cash by selling a business is becoming increasingly difficult. Instead, many business owners are deciding to pass their businesses on to the next generation. Which is good for themselves, good for the economy and opens the door for gifted young family members. Unfortunately, not all business owners understand how to keep equity, generate fresh family opportunities and still earn more.

Business Property Relief may let you hang on to what you have built free from Inheritance Tax but, in order to do this, you have to create a stable and profitable business. Passing on a going concern is much more worthwhile than simply investing lumps of cash from a business sale.

Many businesses thrive in their children's hands, but if your children don't want to take an active role in the business, professional managers can give your grandchildren – and their children – a chance to show their own inherited business skills. Innovation and entrepreneurialism tends to run in the blood! So how can you pass your business on?

Aspire

You must develop a mindset and attitude of creating opportunity for future generations. Many large successful family businesses talk about stewardship and looking after wealth for the next generation.

Start by wanting to hand something of value on. Strategy – Make sure you develop a sound strategy for the long term. You need to ensure you have a business strategy for the operations, medium-term strategy for the overall family operations and a long-term strategy for the future generations. All must complement each other.

Entrepreneurs

You must develop an entrepreneurial culture. Your children may not want to be butchers, bakers or candlestick-makers like you, so you have to have the culture and attitude to spot opportunities, assess the strengths of those opportunities and gather the resources to exploit them. Opportunity – As well as an entrepreneurial culture to spot opportunities outside the business, look inwards at the family and the skill sets they have.

Complementary opportunities may already exist and the strategy for the family can be developed around the skill sets of the family, rather than forcing family members to fit the business you have built.

Family office structure

Develop a 'holding company' structure with your family business as the umbrella that invests in its subsidiaries. This investment may be time, money, mentoring or market knowledge, but it is the first step to that entrepreneurial culture that allows you to spot and exploit the opportunity for other family members and make it successful.

Governance

Good governance is about developing and managing the people both family and non-family to be successful leaders and engaged shareholders.

Stability

Work hard to create a business that is stable, profitable and professional. Many successful family firms have a portfolio of businesses underpinned by stable cash generators that gives them the ability to invest in new ventures.

Stability of people and business creates a long term operation to pass on to future generations.

Educate

Make sure you educate your family properly from an early age and encourage them to continually develop in their chosen area or skill. This will ensure you have someone capable to pass the business on to.

If no-one steps in to take over the family office, you will at least have developed your children into useful members of society.

Talk

Communication is very important in family businesses. Encourage and promote a two-way dialogue and have regular face-to-face contact. The most successful family firms place a high value on family unity and have regular family gatherings.

Professionalism

Make sure your business is as professional as possible in all areas. From the people you employ to the processes that drive the business. Having professional structures not only improves chances of success but allows efficient delegation as your business expands.

 

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