Keeping it in the Family
Planning for the future succession of a family business is never easy and whilst over 70% of businesses in the UK are family owned, research has shown that only 13% of family businesses survive beyond the third generation. The Government looks upon family businesses as a vital part of the rural economy and as such has invested £40 million in the Rural Growth Network.
As part of this initiative, twenty four representatives from professional firms and not-for-profit organisations in the South West are participating in the Rural Growth Network programme, a year-long pilot scheme, which is in part funded from the government's Rural Growth Network.
I am lucky enough to be one of the delegates on the programme, which was launched in March, and included a two day intensive masterclass at the world-class business school, the Institute for Management Development (IMD) in Lausanne, Switzerland. Along with other lawyers, accountants, land agents and business advisers, I learnt about the issues unique to family businesses such as succession planning and developing family constitutions, to enhance and develop my existing skill set in this area.
The transition of the family business from one generation to the next raises complex and emotion-laden problems so it is little wonder that many family business owners fail to plan. However, ironically, it is often this failure to plan that causes the disharmony that they try so hard to avoid. By planning ahead, effective succession strategies can be formulated and implemented in an open and positive environment.
Whilst no two family businesses will ever be the same, there are three core elements common to them all: the family, the business and the owners. A change in the make-up, structure or dynamics in any one of these will inevitably impact the other two.
Good succession planning means being aware of the interaction of these three areas and adopting an approach that takes them all into account.
Things to think about…
It is crucial to decide what the vision is for the business and to be sensitive to the needs and expectations of the generations involved in the process.
When undertaking the succession planning process there are some key things to consider:
- Is there an ownership succession plan in place and is understood fully and accepted by everyone?
- Do the next generation want to own shares in the business and if not, what can be done to address this?
- Is the next generation properly prepared and ready to take on the responsibilities of becoming shareholders?
- If shares are only going to be given to those working in the business, how can you be fair to those who do not?
- Is there sufficient experience within the family to take over the running of the business?
- Must there always be a family leader and/or a family member on the Board?
- What can be done to ensure that siblings/cousins will work well together when the older generation are no longer around?
- How do you balance the needs and requirements of working family members versus non-working?
- If external management is required, what can you do to recruit, retain and motivate the individuals concerned?
Succession planning is a journey that requires clear and open communication. Very often the process can be helped by engaging an independent and objective third party to chair meetings and provide guidance if the parties are unable to agree. Such a third party will often be a professional adviser, who will have experience of these types of discussions and can help to implement and document an agreed strategy. As part of the Rural Growth Network programme, participating firms will be delighted to assist family businesses and to provide initial business advice free of charge to family firms.
So don't leave it too late to plan for your family business. Get in touch if you think this might help, but above all, talk amongst yourselves and put a robust succession plan in place.