Successful succession planning for owner-managed and family businesses

 

 

 

 

Samantha Hart, tax partner at Deloitte Private in the South West

Transitioning from one business owner or leader to another is a time of huge uncertainty and, while every business is unique, some of the underlying issues around succession are very common.

To be successful, succession plans need to be robust to avoid distraction from the business itself and to maintain strong family relationships. As well as enabling the owner to effectively plan the future, a solid succession plan can offer the opportunity to drive growth in the business and consider new ideas.

Where to start?
Organisations seeking to implement an effective succession plan should not view it as a single process, rather a series of concurrent programs and initiatives designed to produce high quality future leaders.

There are multiple key areas to think about as illustrated below:

The need for planning

Effective succession planning isn’t just about deciding who will run the business in the future, it is also important to determine the kind of business they will run. While it may be as simple as working with a family member to take over, the process could be as complex as overhauling the structure of the business to align it with long-term objectives.

Future leaders

Ensuring future leaders are involved in the business at an early stage allows them to know how the business runs, shape future growth plans and understand the legacy they are taking on. If the next generation start by taking junior roles in the business to explore their strengths and join the board as time progresses, this can be highly successful. Equally, I have seen family members gain experience outside the business, bringing new ideas to refresh business strategy.

Watch and learn

Rising family members or next generation leaders who are put in a position to watch, learn and participate in discussions regarding the business, are getting a valuable education. Engaging them in this way encourages relationship building, paving the way for strong collaboration in the future.

Observation also helps build emotional readiness so future leaders are prepared for the pressures they might encounter. Together, the present and future leaders can work to formalise the values and principles they have in common, while trying out new approaches and ideas as a team.

Scenarios to avoid

If the next generation aren’t involved in the business and there is no planned transition to a management team, certain scenarios can arise which threaten a loss of value to the business. The sudden death of an owner could see family members thrown in at the deep end, having to quickly build their credibility with all stakeholders from employees to customers and suppliers. Not every owner-managed or family business will be passed onto the next generation so building a strong management team and considering a suitable exit may be required.

Flexing to inheritance tax changes

Any business that will be passed onto the next generation will always need to be mindful of Inheritance Tax and flex accordingly. It is a huge consideration for many family-owned businesses and not always straightforward. Unused pension and death benefits, alongside the recently proposed inheritance tax reliefs on Agriculture Property Relief and Business Property Relief, are already highlighting questions around succession, which is why planning is so crucial.

Solid succession

Overall, for owner-managed and family businesses, having a solid succession plan in place is a positive step forward. It can support the growth of the business, engage the next generation, allow taxes to be considered and retirement goals to be met. It also enables those involved to have certainty and transparency as to the future direction of the company, driving both business success and family harmony. It’s never too soon to start thinking about this and to put a plan in place.

How we can help

Sam Hart leads the Deloitte Private team based in the South West. The team is focused on delivering tailored services to help individuals, families and their businesses meet their goals.

To find out more about how the team can support your business, email sahart@deloitte.co.uk.

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