For many business owners, their input is invaluable to the day to day running of their company. So, when an owner leaves a business, ensuring a succession plan is in place can help smooth the transition to new ownership – even if the new owners are family members.
SoGlos spoke to Willans LLP solicitors in Cheltenham to find out why succession planning is so important and how it can benefit businesses, from large, established companies down to the smallest family firms.
About the expert – Rachel Sugden, senior associate solicitor at Willans LLP solicitors
A senior associate solicitor in Willans’ wills, trusts and probate team, Rachel Sugden helps clients with complex estate planning, lifetime trusts and the administration of estates. She is also a full member of the Society of Trust and Estate Practitioners.
Sugden helps business owners, from start-ups to established companies, to safeguard their business interests and pass them onto the next generation in the most tax efficient way.
First of all, what is succession planning?
As a business owner, you probably spend a lot of time thinking ahead: safeguarding against threats to the industry, sizing up your competition, setting your budget and thinking about expansion. The succession of your business is just another branch on your wider business plan.
Succession planning is all about having a clear view of the future. It is the process of ensuring that the things you’ve worked hard for can and will end up in the right hands in the most tax efficient manner when you exit the business, be that through choice or necessity.
Why is it so important for business owners to have a succession plan in place?
When you own a business, there are people who rely on you. What would happen to the business if you, or one of your business partners, unexpectedly lost capacity or passed away? Would your staff get paid and your supplier contracts still be fulfilled, for example?
A succession plan puts a clear structure in place removing additional stress and confusion at an already challenging time. Sensible and coherent planning can offer business owners the reassurance that control will be retained by the business following the death of a partner, whilst also ensuring that the cash benefit of that interest goes to the deceased’s loved ones.
Currently, certain business interests benefit from inheritance tax relief and careful planning and review is needed to make sure that those reliefs are secured and protected to maximise the value of the business for the next generation.
Do you still need a succession plan, even if you’re intending to pass your business on to a family member?
Where businesses are passing to your family, you probably want to make sure that their inheritance is as valuable as possible and that the transfer of ownership runs smoothly. Therefore, planning is arguably more important where family are involved.
We often find that where businesses are passing to multiple siblings, it is not always the case that all are actively involved in the business. Here, the balance of control and benefit becomes incredibly important and careful forethought can make the transition easier – both practically and emotionally – for those left behind.
It is worth remembering that constitutional documents will often include rules about who can inherit the business from a deceased business owner, so these rules will need to be considered to ensure that the transfer to your family members can take place.
What other options are there if there isn’t a family member to take on the business?
A family member does not need to be actively involved in the running of the business to inherit from your hard work. It may be that, following your death, the company is to be sold to a third party or your shares bought back by your fellow partners. A sale of your interest offers the family a cash payment in return for control of the business.
Alternatively, your family may be able to remain involved in the business in a non-executive capacity. This allows them to continue to benefit from the underlying value of the business without taking an active role in the daily activities.
In all cases advice should be taken to ensure that the mechanisms in place are appropriate, that funding is available to facilitate what you want to achieve, and that any arrangement is carried out in the most tax efficient manner.
How can business owners make a profitable exit from their business, while still ensuring its future success?
Early planning, teamed with appropriate professional advice, will help any business owner to ease the process and maximise the potential – or minimise the impact – of any exit.
There is also much to be said for open communication with the next generation from an early stage. Involving your successors in the role that is expected of them whilst you are still available as a mentor and guide minimises the risk of stage fright when they are left to take the concern forward.
If a business owner is looking to retire or move on, what’s the first step they need to take?
We’d recommend investing in appropriate professional advice at the outset to talk about everything from the practical issues that they need to consider, to the impact that their exit will have on their personal tax affairs. Very often, any tax planning opportunities will be subject to certain timeframes and having everything lined up will pay dividends.
What support can Willans LLP offer business owners?
With the day-to-day demands of running a business, it is very easy to focus on the here and now and to see professional advisors only as a means of completing a transaction. However, a successful business is a valuable legacy and deserves a regular health check.
We aim to make succession planning as painless as possible for busy business owners. Our team are able to call upon the expertise of corporate, probate and employment lawyers – offering a unique vantage point from which to assess the alignment of your business interests and personal estate planning.
