KEEPING IT IN THE FAMILY: THE CHALLENGES OF FAMILY BUSINESS SUCCESSION

17.02.2021
BY LONDON & CAPITAL
Facebook Twitter Linkedin

If you own a business, and you’re thinking about succession, you’ll want to leave it in the safest hands possible; and a natural instinct might be to pass the reins to a family member. But is this the best decision for the future of the business you have built?

The fact is, succession is a difficult and emotional topic for family businesses. Around 88% of private businesses in the UK are family-owned (according to the Institute for Family Businesses) and some of these, such as JCB, Specsavers and Dyson, are extremely successful. Despite this, only 42% of families have a clear succession plan. So, why aren’t these businesses planning ahead?

THE GENERATION GAME

In its simplest form, succession planning for a family business involves finding and preparing the next generation of leaders to continue growing a company after the current management team retires or leaves.
But running a business is stressful, and involving family members doesn’t work for everyone. According to the Family Firm Institute, 70% of family businesses don’t survive going into a second generation (and 90% don’t make it to a third). With family businesses, succession discussions can include difficult questions. Are the owner’s relatives the best people to take on the reins? Do future generations even want to work in the family business? And if they do, are they ready for the responsibility of carrying the mantle?

That said, there are benefits to keeping things in the family. As well as profitability and growth, owner families will want to ensure the business lasts for the benefit of future generations. Looking to the Henokien dynasty, a conglomerate of businesses that has successfully been passed down through five generations, one of their general secretaries once said: “The owners don’t want to squeeze the company and take the maximum profit for themselves; they want to leave it in better shape.” This approach can also be a strong brand asset. External customers and investors will find confidence with a company being run by an owner family championing longevity and aligning themselves with its future.

STRAIGHT TALK

Overall, the well-managed succession of a family business can create a long-lasting and profitable legacy that future generations can continue to benefit from. However, a lot of work needs to be done to ensure a smooth succession.

You need to have frank discussions. Delving into motivations, ambitions and dreams of potential future leaders. Crucially, families also must decide if they want to remain managers or simply owners. The difference can play a big part in company structuring: what percentage ownership would the family want to retain? If managers are hired, will the family still be involved in key decisions? Clearly establishing your relations’ attitudes towards the business could pay dividends.

You also must be realistic about what’s best for the business. You may view your family business as a legacy, something you’re proud of and can’t wait to watch your children run. They, on the other hand, may view it as your passion while they carve a path pursuing their own interests. Whatever the case, remember that if the business is badly run and its value falls then, it’s of no use to any legacy plan.

And what about you, the owner? You need to know what your future role will be (if any) as many retiring owners struggle to fully relinquish control, and this can be even more difficult with a family business. Whatever way you leave the business, you should be clear about this for the sake of everyone involved.

Each business is susceptible to outside forces, such as regulation, the economy and competitors, but when it comes to family businesses you can actually have a real say on succession. Talking to qualified experts, like the team at London & Capital, can be extremely helpful in objectively deciding what’s best for the family business and how it features in your legacy.

To get in contact please give us a call on +44 (0) 207 396 3388, or fill in our contact form here.


Disclaimer: The value of investments and any income from them can fall as well as rise and neither is guaranteed. Investors may not get back the capital they invested. Past performance is not indicative of future performance. The material is provided for informational purposes only. No news or research item is a personal recommendation to trade. Nothing contained herein constitutes investment, legal, tax or other advice.
Copyright © London and Capital Asset Management Limited. London and Capital Asset Management Limited is authorised and regulated by the Financial Conduct Authority of 12 Endeavour Square, London E20 1JN, with firm reference number 143286. Registered in England and Wales, Company Number 02112588. London and Capital Wealth Advisers Limited is authorised and regulated by both by the Financial Conduct Authority of 12 Endeavour Square, London E20 1JN, with firm reference number 120776 and the U.S. Securities and Exchange Commission of 100 F Street, NE Washington, DC 20549, with firm reference number 801-63787. Registered in England and Wales, Company Number 02080604
Facebook Twitter Linkedin