{"id":2653,"date":"2020-02-03T00:00:00","date_gmt":"2020-02-03T00:00:00","guid":{"rendered":"https:\/\/www.rbcwealthmanagement.com\/en-eu\/2020\/02\/03\/passing-the-family-torch-succession-planning-tips-for-family\/"},"modified":"2023-11-01T11:12:40","modified_gmt":"2023-11-01T15:12:40","slug":"passing-the-family-torch-succession-planning-tips-for-family","status":"publish","type":"post","link":"https:\/\/www.rbcwealthmanagement.com\/en-eu\/insights\/passing-the-family-torch-succession-planning-tips-for-family","title":{"rendered":"Succession-planning tips for your family business"},"content":{"rendered":"

Family businesses in the UK say their long term goal is to protect the business as the most important family asset, according to the 2018 Family Business Survey<\/a>. <\/p>\n

Yet, just 18 percent of family businesses surveyed say they have a robust, documented and communicated plan in place. <\/p>\n

It\u2019s a daunting prospect \u2013 to compress the history of something so complex, something so riddled with working parts, into a transferrable blueprint that can be used by future generations. And some owners don\u2019t want to do it, aren\u2019t certain they even know how to transition or formulate a succession plan<\/a>. <\/p>\n

\u201cWhen you’ve built your business<\/a> from scratch and made every decision from how many paper clips you need to order to massive commercial multi-million pound questions, it’s a huge deal to get your head around the idea of letting go and handing that control on to the next generation,\u201d says Matthew Hunter, director, Relationship Management at RBC Wealth Management in London. <\/p>\n

To Hunter, there’s no singular approach to succession planning<\/a>. Instead, it\u2019s a spectrum of solutions ranging from building a simple will to crafting a plan years in advance of stepping down. Unfortunately, an overwhelming majority of family businesses in the UK veer towards the bare-minimum approach. <\/p>\n

Here are some tips to help family business owners plot out that transition from one generation to the next. <\/p>\n

Start succession planning early<\/h4>\n

Knowing when to start succession planning is one of the biggest challenges. While elements like ailing health or offers to buy the business often trigger an exit strategy, there’re arguments for starting to lay the groundwork now so the plan can be enacted the second the business owner starts thinking about moving on. <\/p>\n

\u201cSuccession needs to be planned and executed carefully, paying as much attention to the letting go of the seniors, to the holding on of the juniors,\u201d says Nigel Nicholson, co-author of Family Wars: The Real Stories behind the Most Famous Family Business Feuds<\/em> and professor of organisational behaviour at London Business School. \u201cProfessionalisation and good governance practices can help enormously.\u201d <\/p>\n

The long lead-in allows for a step-by-step approach with the incumbent owner working alongside current executives to really examine and grasp the finer details of running the company. <\/p>\n

\u201cThey can start to learn to handle the money, learn the management skills, or appoint external managers if you need (them) to make this business work beyond the lifetime of the founder,\u201d adds Hunter. <\/p>\n

For big business families with complex affairs, a family constitution is also a helpful tool. <\/p>\n

\u201cThey tend to be a mix of legally-binding and non-legally binding elements like mission statements or family objectives,\u201d explains Hunter. \u201cFor example a long-term goal could be to ensure this business stays in the family as long as possible to benefit (future) generations,\u201d he adds. <\/p>\n

Don\u2019t overlook the emotional side of business succession<\/h4>\n

Nicholson cautions family business owners against focusing too much on implementing the structural elements that they ignore the psychological or personal effects of the transition. <\/p>\n

\u201cThe chief need is to deal with emotions alongside a rational planning process and not let them get intertwined \u2013 the fears of incoming and outgoing generations need to be addressed sympathetically, while the rational planning process unfolds at a pace people can handle, with good handholds along the way as people feel their way into their new roles,\u201d says the family business expert. <\/p>\n

\u201cIt must be forward looking; celebrate the past so as to let go of it, and move with positivity and confidence towards the future.\u201d <\/p>\n

One way outgoing owners can manage the handing over control, says Hunter, may be to set up a trust. A trust is a legal relationship created when the ownership of certain assets are transferred to another person or company (the trustee). The trustee then manages and administers those assets in the best interests of those involved. <\/p>\n

\u201cThe control point comes up immediately because when you create the trust, if you’re using those sorts of structures to take assets out of your own name as part of a succession planning exercise, then you’ve got to be comfortable with the idea you’re giving up personal control of them,\u201d he adds. <\/p>\n

The founder can offer guidance through a letter of wishes but will have no legal ownership of the assets. <\/p>\n

Build your team for the future<\/h4>\n

Using a trust and choosing a trustee may be just one part of the succession planning process. <\/p>\n

\u201cYou may well need asset and wealth managers, you’ll most certainly need good accountants and lawyers too,\u201d says Hunter. <\/p>\n

A solid advisory team can help develop and assess different strategies, weigh scenarios for selling<\/a> and allocating assets, if this is the direction a family business owner is going, and support the former head of the business through the emotional elements. <\/p>\n

In the case of many family businesses, the succession planning team will include relatives. <\/p>\n

\u201cYou can only bring the best advice if you’re properly sitting down to make a plan for how the succession is going to work,\u201d adds Hunter. <\/p>\n

A team of advisors can also assist in valuing the company in terms of how the timing of a transfer could affect the company\u2019s worth and how it can be broken into pieces in the event the next generation doesn\u2019t want to move forward. <\/p>\n

\u201cNot every business is going to neatly enable itself to transition itself to every generation,\u201d adds Hunter. \u201cSometimes there are no mechanisms and the best thing to do is to achieve a good sale at the right time.\u201d <\/p>\n

Keep the succession plan evolving<\/h4>\n

Perhaps the most critical element to keep in mind when setting up a succession plan is to see it as an evolving blueprint, one that should be documented at every stage. <\/p>\n

\u201cYou can’t do this exercise once and leave it,\u201d says Hunter. \u201cIf you’ve got a big, complex business family you should, at least every five years, come back and make sure it’s still meeting your goals.\u201d <\/p>\n

Nicholson agrees, adding that revisiting the succession plan with an eye towards the future and the flexibility promised by a changing leadership can offer fresh new ways to look at the company\u2019s future. <\/p>\n

\u201cThis should not be rushed,\u201d he says. \u201cBut it is important the next generation have a proper sense of ownership \u2013 either to maintain a winning status quo, or to find fresh ways of reinvigorating the firm.\u201d <\/p>\n