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Succession Planning for Family Businesses

20th February 2018

If I were to ask you what type of business delivered 70% of European GDP in 2014 and employed over 80% of the workforce worldwide would family businesses spring to mind? Yet those are just two of the statistics quoted in the introduction to a paper which was presented to the European Academy of Management’s annual conference in 2017. [1]

Highlighting the contribution of family businesses to economies the paper opened with the comment that “family businesses play a fundamental role in the economic development of all countries of the world.” Notwithstanding this positive start the paper delivered a more thought provoking message as it examined the challenges of “conflict management and negotiation in family business succession.”

Now when it comes to succession planning for family businesses there is one statistic which has been around at least since the 1990s and that is that only 30% of businesses make it through the second generation. As a stand-alone figure the implication could be that 70% of family businesses fail. However, an Oxford Economics report on The UK Family Business Sector 2015/16 [2] reveals that whilst 30% of family SMEs expect to transfer their business to family members, a further 63% are looking to transfer outside the family.

Nevertheless, the fact remains that succession planning does pose a challenge for family businesses. Quite simply ‘one day all this will be yours’ isn’t really enough of a plan to ensure a smooth and successful transition. Nor, particularly in extended families, should it simply be a question of handing over to the next in line.

So what are the secrets to successful succession planning? Firstly, plan in depth and plan early. Not only does this give existing owners the chance to identify and train succeeding generations, it also helps to ensure that there is sufficient time to put appropriate business and tax structure planning in place. For example, those looking towards tax measures such as Business Property Relief or Entrepreneurs relief need to plan ahead in order to meet qualifying conditions.

The second secret to success is to be prepared to let go and to support succeeding generations should they wish to move the business in another direction. This can be one of the hardest challenges for any family business owner. When you have put your life into a business, it is natural to feel protective. Nevertheless, just as technology moves on, so too must a business if it is to continue to grow and develop.

Family run businesses across the South West offer a unique blend of entrepreneurial spirit and emotional investment by their owners. The difficult issue of passing the business down the line often requires specialist expertise and help.

Commenting on family business succession planning Thompson Jenner’s Exmouth partner Ruskin Wilson said “It’s never too soon to plan for future success” adding “Whilst the current structure may support the business in its existing format it may not be the most efficient going forward. Our experts can provide family run business advice in Exmouth, Exeter and across the South West on all aspects of succession planning, helping current owners to set the conditions for their businesses to continue to grow and prosper.”

 

If you would like to find out more or meet to discuss the services which we are able to provide, please contact Ruskin Wilson or one of our other specialist Partners on 01392 258553 or 01395 279521 to arrange a free initial meeting.

 

 

[1] http://eprints.lincoln.ac.uk/28017/1/2017_EURAM_Negotionations%20and%20Family%20business.pdf

[2] http://www.oxfordeconomics.com/recent-releases/state-of-the-nation

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