Succession plan matters among the family ties

RANDALL & Payne are the headline sponsors of the Gloucestershire Business Awards.

Nominations are open until July 11 and over the coming weeks, partner Will Abbott will be focusing on an aspect of each of the award categories – this week, Family Business of the Year.

Here he explains how to manage a smooth transition from one generation to the next in a family business – from manufacturing to farming, succession planning matters.

MANY businesses struggle with succession.

For the two thirds of UK businesses that are family based, there is an extra layer of complexity.

The family situation needs care – the business may have been in the family for generations and have considerable value which has become spread over multiple and increasingly remote family members.

Profits over the years may have been reinvested and not allowed significant pension provision, meaning older generations may need to stay involved past retirement date which may lead to friction with younger generations.

Does this mean family businesses should approach succession in a different way to other businesses?

The answer is probably not – all businesses need to plan for succession. But it may be that retention of the business in the family rather than sale is the priority, removing one key exit strategy.

As is often the case with many issues faced in business, the key to successful change is to communicate early, clearly and often.

The friction between generations typically results from individuals see- ing the issue only from their own per- spective and lacking an understanding of the other parties’ viewpoint.

When thinking about succession and transition, we encourage all parties to investigate these perspectives and one key aspect of that is understanding the roles of individuals.

As later generations become involved this can become multidimensional with, for example, family members being investors but not working in the business, non-family mem- bers managing the business, family members holding shares and working in the business and various other com- binations.

These relationships need to be prop- erly managed and the appropriate forums established to deal separately with the family issues and the business issues.

In terms of generational changes, the younger members are often pushing for a greater decision making role and this pushing will typically cause resistance from the older members.

While an obvious cause of this friction is attitude to risk, with the older members being seen as more cautious, that should hardly be surprising.

The question that the younger generation often fail to ask is simply what the older generation will do when they hand over the reins.

An individual who has spent the last 40-plus years working full-time in the business will need to transition to a new role and find a fresh purpose.

This is absolutely fundamental to a successful handover and we have seen many examples where addressing this one issue removes much of the roadblock.

Often preserving the status quo looks more attractive to the incumbents than any alternatives.

After all, the existing role may bring with it status, financial security, excitement and opportunities.

How does that compare with 20 years idling the time away at home?

Of course the real key is good communication.

Not one conversation but an open and honest dialogue that is ongoing.

With the family involved, emotions will run high at times so having an external facilitator with an independent perspective, who is neither invested emotionally nor financially, can help to ensure fair play and keep the focus on the issues rather than the people.