When the time comes for you to move on from your business, do you know who’ll be taking up the reins?
Succession planning can be a tricky task for any business, and it gets even more complicated when you factor in the unique dynamics of a family-owned enterprise.
But making a plan now will make the switch much easier when it happens. From assessing the readiness of the next generation to navigating financial considerations, starting your plan early will lay the foundation for a seamless transition that preserves the legacy of your family business.
Planning for succession
One of the first questions you’ll ask yourself when passing on a family business is who is right for the job – and are they ready?
This isn’t always easy to judge, especially where family relationships are involved. Begin by trying to assess the skills and competencies of your potential successors as objectively as possible, as well as making sure it’s a path they themselves are committed to. Even if your child has been involved in the family business from a young age, for example, running it might not be part of their plan for the future.
Ideally, your potential successor will have spent enough time in the business and picked up enough knowledge and experience to make the leadership role a natural progression.
You might also consider non-family successors: a trusted business partner, a talented employee within the company, or potentially an external buyer, for example.
Whoever you choose, make sure you set out a clear timeline for the transition, including the following:
- Defining roles and responsibilities for successors: make sure everyone involved knows what’s expected of them going forward.
- Addressing potential conflicts: how might your current employees react to the change? What are the risks of disruption to your workforce and customers?
- Training and mentoring the next generation: allow for enough time to get your successor up to speed while you’re still at the helm.
- Evaluating the financial implications of the transfer: what are the costs and tax implications involved?
Financial and tax considerations
As well as making a judgement on the best person to take over the business and the process you’ll go through to transfer ownership, there are some essential financial implications to consider. This is where we can support you, with expert professional advice.
Ahead of the transfer, you’ll need to determine the market value of your business, based on factors like its assets, liabilities, earnings, and market conditions. This will be key to any negotiations for sale, and will ensure a fair transfer of ownership.
You should also be aware of the tax implications passing on a family business might trigger, including inheritance and capital gains tax (CGT).
Inheritance tax applies at 40% on the estate of someone who has died, but there are various allowances, exemptions and reliefs that might limit the estate that’s taxed. Any ownership of a business, or share of a business, is included in estates for inheritance tax purposes, but relief is available on certain assets.
Meanwhile, CGT might be due when selling or passing on a business, but you could be eligible for business asset disposal relief to reduce the impact of this.
Again, we can help you to plan for these, advising on available reliefs and structures to make the transition as tax-efficient as possible.
Get expert advice
Creating a plan and getting the right advice early on is the best way to prepare for a smooth transfer of your business.
We’re here to help with specialist business planning services for family businesses, and tax planning advice tailored to your situation. Get in touch to find out more.