As a business owner, the legacy you leave your children might be more than wisdom or a helping financial hand. We’ve spoken a lot about preparing to sell a business, but passing it to your children to take the reins could set them up with a successful, entrepreneurial career.
Described as ‘the backbone of the economy’ by The Institute for Family Business, their figures show there are 4.8 million family-owned businesses in the UK, generating over a quarter of GDP. But, is keeping a business in the family as simple as it sounds?
In reality, succession planning is very different to a typical exit strategy. Logistically and financially, there are different considerations. Personally, it’s likely to come with additional emotional challenges. So, what should you do?
1. Plan early
The first thing to do, as early as possible, is establish your children’s aspirations. If they’re interested in succeeding you, do they hold similar ambitions for the future of the business? Do they have the relevant skills and knowledge, or do you need to mentor them? You also need to consider if it will provide them with sufficient personal development. Once you’ve identified likely successors you can begin to plan and prepare for the transition.
If they don’t share the same enthusiasm or aspirations, you may need to consider a plan B.
2. Ensure sustainability
In a similar fashion to selling a business, you need to ensure there is a tangible asset that can be passed on. If you are the business, it will struggle to function without you. Documenting processes and delegating as many vital business functions to your children whilst you are there will help.
First and foremost, it also needs to be profitable and remain so for the foreseeable future. Take a close look at margins if you provide a number of products or services and don’t be afraid to drop unprofitable activities if it won’t negatively affect other areas of the business.
3. Formalise the plan
Are you intending to gift the business outright, in part, or will your children be purchasing it? If they are purchasing some or all the equity, will they need to arrange financing? There may be tax implications to think about too.
It’s a good idea to document important agreements. Also consider formalising;
- A timeline of events
- Your future involvement, if any
- How you’re going to communicate the change to stakeholders
4. Get coaching
No matter your children’s education, work experience or involvement in the business already, it’s likely you’ll need to mentor them in some capacity. You will intrinsically know the business inside-out, so communicating what comes natural to you might be a challenge.
On the job work experience is likely to be the most efficient and straightforward method. But, if it’s unfeasible with their schedule or restricted in some other way, consider putting together a formal skills development programme and timetable. The more you plan and document now, the more seamless the transition should be.
5. Let go!
You’ve decided to pass your legacy on, which you are likely to have a strong emotional attachment to. As the business remains in the family and under the direct influence of your family, it might be all too tempting to remain working, managing big decisions.
If you’ve agreed to retire wholly, phasing out your involvement over time could be the best solution. You must let the new Directors flourish, take on responsibility and steer the future success of the business.
Remember, you’ve planned, mentored and invested in their future. There might be some decisions you wouldn’t have made yourself, or frankly disagree with, but you’ve made a conscious move to take a back seat. By all means advise them, you have a wealth of experience, but the future success of the business is in your children’s hands.
6. Manage your retirement
From running the business, you now need to manage your income in retirement. With more free time, the retirement provision you’ve saved over time needs to provide a sustainable income for the rest of your life.
There are new considerations, from your retirement aspirations to your health and longevity. If you’d like help and advice structuring your family succession plan or mapping your retirement, we are here to help secure your financial future. Please don’t hesitate to get in touch with one of our expert financial planners.