“I own a business and this is my dilemma…It’s a family business but it’s time for us to think about moving on. The problem is, we’re not sure who should take it over. Should we keep it in the family? And how do you choose the best person to run the business without creating a rift about who’s getting what? Any advice would be appreciated.”
This is such a great question from a client. When you’re in business and you’ve worked hard to make it a success, figuring out your succession plan can be a dilemma.
Here are some points to consider.
People are usually very attached to their business
Often people tell me their business feels like their baby, metaphorically speaking. When you nurture something for many years, of course it feels personal. Building and running a business takes a lot of time and effort. By the time you’re ready to retire or move on, you may want to get out — but there’s often still an attachment there. You don’t want to see it fall apart.
Don’t leave it too late
How far ahead you should plan for succession? The simple answer is five to ten years but that doesn’t account for sickness or an unexpected life event where you simply can’t operate the business anymore. It’s important to think about succession even if you’re just starting out or retirement feels forever away. Who’s going to take over if you can’t do it anymore?
When keeping it in the family is a priority
Deciding between family members can be tricky. Have they already been working in the business with you? Do they have the necessary skills? Also keep in mind they may not have the same ideals or values as you. So, they may not want the same things for the business. Are you OK with them taking it in a new direction once you’re out of the picture? Ask these questions and allow everyone to be honest and upfront. Determine whether you’ll still be involved in the business. Many buyers appreciate this, at least for a set time. Or will it be a clear-cut transition where you’ll need to keep your nose out?
Get a business valuation
This is important, regardless of whether you plan to sell or keep it in the family. Once the business is valued, other children can be allocated something of equal value, so they don’t feel left out. Often the people who aren’t qualified wouldn’t want to run the business anyway, but they might be interested in being a silent partner.
The valuation also helps you facilitate those discussions about how the business works, and whether your successor has the necessary skills and ability.
Sometimes family isn’t best
Ask yourself if you’d be better off selling the business, especially if you’d rather have a clean break. You might have a competitor who wants to expand or perhaps there’s someone who’s worked with you for a long time who might want to buy in. We have a lot of clients who, over the years, bring along an employee who has what it takes to run the business. Sometimes they buy shares so eventually, in five years or whenever you plan to move on, you have someone ready to take over.
Sort out the structure
Family trusts are popular but that might not be the best structure for your situation. This is a conversation to have with your adviser, who should be able to help you solve your dilemma — and find peace of mind about your succession plan.
By Nicola Hazell is a Manager, Business Services at DFK Crosbie accountants and business advisers, proudly based in Newcastle.