According to figures released by the Government agency, Business Link less than half of first-generation family businesses in the UK have succession plans in place.
This could cause serious problems because many business owners intend to stand down within the next five years and will need to ensure a smooth transition to the new owners in order to fund their retirement. Many will also want to ensure their business continues as a going concern – especially if they have spent a large part of their lives building it up and making it successful.
There are a number of options available to entrepreneurs who wish to retire or move in a different direction. The business could be handed on to a family member or colleague. It could be sold to an outside party or be bought by the existing management, merge or be taken over by another company.
Whatever the course chosen, it is essential to start planning several years ahead of your target retirement date, particularly if you are handing over to family members or colleagues.
The first step is to hold meetings with those who will run the business when you leave so you can agree an exit strategy.
If you own a large share of the business, the remaining partners or directors may need to raise money to buy you out.
It may be that you agree to sell your shares back over several years so the firm’s finances are not put under too much pressure all at once. In that case, you may need to change your will so the arrangement can continue should you die before the sales are completed.
There could be tax implications whichever system you choose for withdrawing capital from the firm so professional advice should be sought.
If you own the business premises, you will need to decide whether to sell or lease them back to the firm. It is also important that those who remain in the business consider how they will continue without you. It may be that your expertise can be passed on to the remaining directors, or they may have to replace you. If it is to be the latter, a successor should be chosen before you leave.
If you have built up a close relationship with key customers then you should arrange for them to meet the other directors so trust can be developed and continuity assured.
Some entrepreneurs find it difficult emotionally to leave a business they have built up from scratch. If you feel that way then you might consider staying on as a consultant. This would provide stability for the firm and reassurance for its customers.
Some entrepreneurs who are handing over to family members feel guilty that they may be taking too much out of the business making it hard for the next generation to succeed.
By the same token, the sons and daughters can worry that they are not providing their parents with a ‘fair deal’. Sometimes, business priorities and family ties can become a little blurred.
This is another reason why it is important to seek guidance from a Solicitor and an Accountant as they can remain objective and can ensure that the agreement is fair to everyone.
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