Attorney-at-law Edgar Paltzer specialises in advising clients on the legal aspects of wealth structuring services. This article will look at succession planning, providing an overview of critical considerations when strategising to pass a business on to the next generation.
The key to successful succession planning is starting early. According to a report from FPM, family businesses form the backbone of the UK and Irish economies (for example), accounting for more than 80% of private companies and providing over 15 million jobs. Thriving for generations, successful family enterprises are innovative, adaptable, entrepreneurial and forward-thinking.
Succession planning centres around the transfer of leadership, ownership and management of a business, passing it from one generation to the next. Although this may sound like a straightforward concept, in reality, the process can be incredibly complex and fraught with potential challenges. Developing and executing a well-crafted succession plan is a multilayered process that requires honest discussions between individual family members. It is vital to establish the objectives and needs of the various stakeholders who contribute to the dynamics of the family business well in advance of the actual handover.
In boardroom and family discussions, succession planning is often the elephant in the room. Nevertheless, it is important to adopt a proactive stance, starting the conversation as early as possible to dispel tension and make the transition-planning process as smooth and comfortable as possible. It may be prudent to plan for the transition of leadership, ownership and management to occur separately, breaking the process down into a series of steps to make it easier to manage.
Whether a business owner has inherited their venture from a family member or built it from the ground up, they will be anxious to ensure it is left in safe hands. Many business owners struggle with the notion of relinquishing control, having dedicated their lives to their business. However, in terms of a business’s long-term survival, it is important to ensure a smooth handover to the next generation. In some circumstances – for example, where a business owner’s children have no interest in taking over – the business owner may opt to sell to a third party.
The lifecycle of a profitable business often far exceeds the lifetime of the founder, in some instances by hundreds of years. Business owners need to consider their preferred future role, one, five and ten years ahead, contemplating whether they still wish to be involved with operations or prefer to relinquish control. Identifying objectives and putting in place a plan to achieve this is integral to avoiding emotional, family and financial strains.
Succession planning offers a degree of certainty for all stakeholders in the business, including family members, employees, investors, suppliers and customers. Without a well-crafted succession plan in place, it will be impossible for the next generation of leaders to grow into their future roles. In some instances, the next generation may be reluctant to become involved in the business, which is why it is so important to open dialogue well in advance.
The succession planning process provides stakeholders with an opportunity to share their intentions and goals, as well as providing clarity for the future of the business. Rather than centring around the outgoing owner, the process is all about creating opportunities and establishing a positive culture to guide future generations of business owners.
For many business owners, succession planning is a taboo subject. However, it is vital to have open and honest conversations between family members. In some instances, tensions surrounding the handover of a business have culminated in both fractured family relationships and failed companies. Clear, open and honest communication is a critical aspect of succession planning, ensuring that everyone has realistic expectations. Decisions regarding the future of the business must be reached in an open, transparent way, with clear communication between the family and the senior management team.
