Succession planning is undoubtedly one of the biggest areas of concern that businesses in the UK face today. If you own and run a successful business do you want to put it at risk by failing to plan and not putting an effective strategy in place? The issue is a major concern for businesses as very often there is no governance structure or a succession plan in place.
Many people probably think that succession planning is just about making a Will but this is not the case. Making a Will is of course a very important part of the planning process which will ensure that your estate passes to your chosen beneficiaries in accordance with your wishes when you die, however succession planning is broader than that and is one aspect of the estate planning process.
So why is succession planning such a concern, particularly for family businesses? Undoubtedly it is a daunting task which many people simply put to the back of their minds to deal with on another day whilst they continue to deal with the immediate needs and pressures of running the business. There are of course important legal, practical and taxation issues to consider. In addition to that, there are also the family relationships and dynamics to bear in mind and the competing interests of the different generations which may be a reason as to why this important issue is not addressed. The interests of the younger generation who are probably more tech savvy and keen to develop the business, but who are perhaps more likely to take greater risks, must be weighed against the interests of the older generation who may have a more traditional and conservative approach and who want to ensure that the business (and the legacy) is ultimately protected.
However, notwithstanding those issues which will need to be addressed, it is crucial that the matter is not ignored or delayed as a lack of succession planning may not only leave you open to conflicts, problems and possible discord within the family but will undoubtedly put the business itself at risk. One approach would be to break the succession planning strategy down into smaller manageable tasks, thinking first about the short/medium term planning strategies and then the longer term.
A sobering thought to consider, but what would happen to your business if you had died last week? Would the business survive? Would there be someone to keep the business going to ensure that the asset is safeguarded for the intended beneficiaries? Who would be authorised to pay the staff and creditors? How would the goodwill be protected so that the brand and business maintain their value?
In the longer term, succession planning will involve having a strategy in place for effectively bringing the next generation into the business (if it is a family business) to ensure that the business is successfully handed over to them at the right time with minimal disruption and a smooth transition. Whilst undoubtedly the children and family members who are to remain in the business will be the main focus, it will also be important to manage relationships with those children and other family members who have no interest or aptitude for the business. For those that are unable or unwilling to hand over the reins or where there is no family involvement, they may want to consider selling the business in which case it will be important to make sure that the business is attractive to a trade buyer or management team. You should also consider your own position to ensure that you minimise any charge to capital gains tax on a sale. Whatever the case may be, it is essential that the strategic options are considered sooner rather than later.
Succession planning will undoubtedly present both opportunities and challenges that businesses will need to face over time, particularly as the business grows and develops and family relationships evolve, but this is one issue that needs to be addressed. We recommend that you start early with the planning process, carry out a critical assessment, explore the options that are available and take professional advice. Preparing a family constitution may help you identify and deal with certain issues that may otherwise be ignored. A family constitution is not a formal document and has no legal force as such. It is more of an informal statement of the family’s aspirations and general understanding on how the family’s wealth should be preserved and used by the current and future generations.
Gabrielle Medland is an Associate Solicitor of the firm’s Private Client team based in our Exeter office. If you would like more advice or assistance regarding succession planning please contact Gabrielle Medland (01392 210700 or firstname.lastname@example.org) or any of her colleagues in the Private Client teams in Exeter, St Austell and Truro.