Family Business Succession Planning

Family Business Succession Planning

family business

Most business owners are too busy driving sales and developing business opportunities to take the time to look at the long term plans for their business succession planning. There are however key questions that every business owner should take the time to reflect on to ensure the long term future of the business while also planning your ultimate exit / retirement from the business.

The primary questions that need to be addressed are:

• Will the business be passed on to my family?
• Will I ultimately look to sell the business?
• Am I looking for the business to provide a living for as long as I’m alive?

These are very important question that every business owner should be asking themselves as the decisions made today may affect their ultimate goals. It is therefore vital that you develop your strategic planning to fit in line with the ultimate goal for the business.
Let’s take the three examples above and develop briefly, some of the issues that need to be looked at for each.

I intend to pass on the business succession planning to my family / children

The passing on of a business succession planning can become an expensive transaction if not properly managed as it can, in theory, lead to a big CGT liability. It is important therefore, to plan any such transaction carefully and avail of all the reliefs available to you.

One such relief that is very effective when transferring the business to the next generation is Retirement Relief. This takes the form of a relief from the CGT which arises on the disposal of certain business assets. The idea behind retirement relief is to preserve the value of family businesses passing from generation to generation.
Without this the survival of some family businesses could be compromised as a result of the cash or assets required to absorb a large CGT bill.

I am ultimately looking to build the business succession planning so that it can be sold to a third party

It may be your ambition to build your business to a level where it can then be sold to a third party.
If this is your goal it is important to structure your business in such a way that it makes it easy for potential suitors to buy.

For instance, it may be the case that the company owns the commercial premises out of which it operates. This may represent a problem for a potential buyer who may want to take over the business but for various reasons may not want to buy the buildings as part of the deal.
This may result in the buyer walking away from the purchase.

In order to overcome this you may want look to at setting your business up in modular form. This will allow you to package any sale to suit both yourself and any potential buyer.

I am looking for the business succession planning to provide a living for as long as I’m alive.

There are two things to consider with regard to this. Firstly, where you are the main driver for the business, illness may have a serious impact on the ability of the company to provide for the lifestyle that you are looking to maintain. Although you can protect yourself through insurance policies such as income protection, this may not always provide you with enough income replacement, particularly where you are currently tax planning your income drawdown.

Secondly, it is important that the company will be in a position to support your lifestyle where your ability to work in the business has diminished with age. To enable this you must ensure that you have established a strong team that can continue to drive the business going forward and develop a shareholders agreement to protect yourself and your future income.

There are a myriad of other issues that need to be looked when planning each of the above areas and your long term objectives. Therefore, it is vitally important that business owners take the time to assess their long term strategies. Once these have been established, CLICK HERE to develop plans with a suitable professional to manage the fulfilment of these plans in the most efficient and effective way possible.