“Hey SEFS! We’ve worked hard and built us a good business. It’s not massive but we’re very proud of it and want to pass it to our children.
What’s the best way to do that?”
Though it can be analysed in various ways, there are two key (and very much intertwined) broad objectives that need to be met in addressing any successful business succession planning exercise:
1.Who will manage the business?
2.Who will own it?
It is often the family member that initially set it up who continues to manage the business. At some point a worthy successor needs to be found (and groomed). The preference will typically (and understandably) be for a family member, which works in many cases. However, in other cares, hiring in an experienced manager could be the solution if the parents recognise that, for whatever reason, their children/other relatives do not have the necessary skills or will.
That decision does not mean they cannot retain most/all of the ownership within the family. Difficult decisions are needed on how to fairly pass on these assets to children, some of whom will have an interest in maintaining the family tradition (with some only in it for the money!).
At an early stage, it is important to consider the best method for transferring the ownership, both legally and with a view to minimising tax costs. Any such decision throws up consideration of many issues to parents hoping to enjoy the fruits of their labour before illness/death;
- Children marrying someone unsuitable who could get half the child’s assets in a divorce;
- A third party making an offer to buy that can’t be refused;
- Difficult negotiations with banks for otherwise good companies crippled by legacy debt;
- Prohibitive tax costs on passing the assets.
Though there is no perfect solution, family business owners are well-advised, before it is too late, to get best advice to formulate a succession plan that takes into account all relevant factors and competing family interests.
The aim? Ensuring the family business survives to the next generation (and the next and so on).