How Do Family Businesses Survive?
A recent survey revealed that a quarter of the 1.6 million family owned businesses in the UK expect their management to change in the next five years. But over half of these family firms have made no arrangements to hand over the ownership of the business.
One reason for this startling statistic is simply that many entrepreneurs see succession as being so far away on the horizon that they just don’t consider it. However, many businesses fail to succeed in the long term because they are not passed smoothly onto the next generation or conflict is not resolved.
Many entrepreneurs spend most of their lives building up their business, and naturally want it to continue successfully when they retire. It is therefore important to remember that succession is not a single event, but rather a process carefully planned several years ahead of the proposed retirement date. There are several options available including:
- Passing it onto relatives or offspring;
- Passing control to a non family manager;
- Allowing the current management to buy the entrepreneur out; or
- Selling the business to a trade purchaser.
The most popular choice is often to pass it down to the next generation, but this decision should depend on the successor’s knowledge of and passion for the business and leadership skills.
Once a successor is agreed, then he or she needs to be thoroughly prepared for their new role through formal training and mentoring, working in all areas of business and introductions to key customers to develop trust.
Meetings should discuss the strategy, method and timetable of the succession. If the current management is buying out the entrepreneur then the necessary finances need to be in place. This may have tax implications requiring professional advice.
This all creates continuity to stabilise the business after the succession.
Often, current owners of a family business find it difficult to leave and make the break, preferring to stay on as a part-time consultant to ensure a smooth transition period. This needs agreement and careful planning on its implementation.
The family business owner may feel guilty about how much they are taking out of the business when they leave, or their children may feel that their parents are not giving them a fair deal, or vice versa!
It is therefore important to seek the advice of professionals, such as solicitors and accountants, who are experienced in dealing with family businesses and can be objective and fair to everyone. They can play a critical role in the planning and execution of a successful succession.
For further information or advice, contact Richard Coombs
Published 26/06/2008. The author of this article is Richard Coombs
