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LEGAL VIEW
IN ASSOCIATION WITH:
KEEPING IT IN THE FAMILY
Succession planning is one of the key challenges facing companies of all shapes and sizes – putting it bluntly, it can make or break a business.
For many owners the ideal situation is to pass the company on to family members – especially if new generations have come in and helped shape its success.
However, this can be fraught with potential issues and the consequences of not getting it right can lead to major repercussions, including a loss of direction, brand damage, financial instability, operational disruption, devaluation and family breakdowns.
So, what can be done to make sure things stay on track? Ryan Bilsborough, corporate finance manager at PM+M, says: “In my experience, the single most important thing is to begin succession planning well in advance as that tends to ensure a smooth transition.
“There should always be a clear plan that outlines roles, responsibilities and timelines, leaving no doubt in anyone’s mind. This should be a collaborative and transparent process involving all relevant family members and the senior leadership team.
“I can’t stress enough that absolute transparency is essential to make sure there’s universal buy in. If that doesn’t happen, you risk resentment, infighting and push back which could derail everything.
“Also, be honest, especially when it comes to identifying potential leaders of the future. Work together to really assess the skills and potential of family members.
“This can be challenging but the suitable successor, or successors, needs to be capable, talented and enjoy the confidence of all involved, including the wider employee and stakeholder community.”
Michael Barker, partner at Preston headquartered accountants and business advisors WNJ, says that while passing a business onto the next generation has many advantages, there are pitfalls that have to be dealt with.
It can push out ‘non-family’ members leading to able staff leaving. It can also demotivate staff who perceive there to be a ceiling to their progression.
Promoting less able family members ahead of more qualified and experienced staff may also be demotivating.
Michael says: “Alternately, it can adversely affect the younger family who are viewed by some as only there because of who their parents are and overlooks their own capabilities. Staff, suppliers and customers cannot go beyond the old generation because they think the new generation is there because of birthright rather than capability.”
He adds: “There have been occasions where the older generation pass the business onto their children yet cannot pull back from interfering.
“Sometimes problems arise because it is not clear what the succession looks like, either financially or operationally.
“The family connection may mean the handover is done in a more casual, less formal manner without the advice from accountants, solicitors
or business advisers. As a result, the roles, responsibilities and obligations are not clear.”
His advice is: “Ensure family are only involved from the start if they are genuinely interested.
“This is not just a succession issue but should be considered at a very early stage. If a young family member joins a business because they cannot be bothered to do anything else, or it is considered an easy ride, then is bound to fail for them and the business.
“If young family are genuinely interested then they should start at the bottom, learn all aspects of the business, and not be treated with any special allowances, preferences or fast-tracked at the expenses of other staff.
“Make it clear to other staff who could be potentially involved in the business management and takeover in the future how they may be involved.
“Parents need to understand the difference between support and interference, perhaps like other aspects of parenting.
“Ensure that appropriate advice is taken to draft agreements setting out roles, rights, responsibilities and obligations. And some problems may be avoided by bringing in non- family members to give independent advice or points of view on issues.”
Steve Bell, corporate finance director at business advisory and accountancy group Pierce, believes “emotional readiness” is another important factor when considering a handover to the next generation.
He says: “Assess if your children are
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