How to transition your family business before retirement

Handing over a family business to the next generation is often a precarious time. Read on for tips on how to minimise pain during the transitional period.

According to the IFB, around 66% of UK businesses are SMEs and family-run companies. With less focus on corporate strategy, family businesses continue to prosper thanks to their relatively small size and opportunity for future growth.

However, Kennesaw State University in Georgia reports that only a third of family-run businesses remain stable once they have been passed down, and that only 5% make it to a third generation; while a similar report by the University of New Hampshire reports equally surprisingly low figures.

See also: Control and succession in family businesses – Looking at the issue of transition when it comes to family-owned businesses.

With these figures in mind, it’s important that the ownership and management of a business is properly transitioned once senior family members decide to take a step back. Keeping the family business on solid ground into the next generation requires the planning and implementation of an effective succession plan.

Here are some key considerations and tips.

Communicating the handover

There is a difference between who owns and who runs the company. As an owner passes on the day-to-day responsibilities of running the business to their children, they can choose to retain ownership for the greatest degree of responsibility (and profits).

Ultimately, frictions may arise between both sides of the handover, which can delay or even cause the breakdown of the succession. In these instances it’s worth turning to a mediation service to help ease the process and open the lines of communication.

Owner-managers would also benefit from ensuring their other personal affairs are in order once it comes time to pass on some of their responsibilities. A Will can contain an owner’s personal wishes for the business, how ownership will be split and between whom, as well as how it should be run.

Also it is important to be aware of probate, especially for those named as an executor of the Will. Saga’s website says probate can be a lengthy process, depending on the size, value and complexity of someone’s estate but it is much easier if that person has made a Will. If there isn’t a Will, sorting out someone’s affairs can become much more complicated, time consuming and costly.

Who best suits the job?

An article in the Economist describes the pressures faced by children who may not plan on taking up the company reins once the top spot has been vacated. A business staffed by more than one generation of the family could each have different ideas about the way it is to be run.

Whether the current owner is open to the idea of change in the upcoming years, or would prefer to see the next generation carry on their own ideals, this is a discussion that should take place within the family.

As such, identifying those who are interested in and capable of leading the company in the years to come should be a top priority for any business owner- minimising the risk of disruption and allowing optimum time for candidate development.

Create a timetable

A progression plan should contain a set of clear goals to be achieved within definitive timeframes in order to ease the transition process. Outlining what parts of the business will be transferred over to who and at what stages ensures that everyone involved has a timescale to work towards.

These plans can and should be revised throughout the transition process to help make it run smoothly, as it can be tricky to predict every possible scenario prior to the event – particularly in terms of the still fluid UK economy.

With proper planning and implementation of a succession plan, any business has the chance to defy the odds and not only survive, but thrive amongst its rivals, with a fresh outlook and attitude to growth.

Praseeda Nair

Praseeda Nair

Praseeda was Editor for from 2016 to 2018.

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