By Piers Dryden, Partner of Beyond Law Group’s specialist corporate practice, Beyond Corporate

Most family business owners would like to see their business transferred to the next generation; however, over two thirds of family businesses do not make it to second generation, and nine out of ten do not make it to the third generation.

Given these statistics, we have distilled Beyond Corporate’s experience of helping our family business clients achieve their goals into three key principles to help you on your succession journey.

1. Succession is a process, not an event

Successfully transitioning the ownership and management of a family business from one generation to another does not occur with a single event. Too often, discussions about succession between advisors and clients begin with the technicalities of tax planning, various types of ongoing arrangements and structures and the legal processes that accompany them. However, the better approach is to recognise that succession is a process that can be broadly divided into three main (sequential) stages: (i) Preparation; (ii) Analysis; and (iii) Implementation.

Begin by conducting research into the current strengths, weaknesses, opportunities and threats to the business (SWOT analysis). Interview senior management to understand their aspirations for the business and obtain their input into the SWOT analysis. Interview key suppliers, customers and other external stakeholders and ask them how your business is distinct from competitor firms. Interview active and non-active family members on how they see the business, what their aspirations are for the business and their skillsets.

Analyse the output from this research and develop a business plan to address the key findings including how the relevant stakeholders can play a part in optimising management of the business. Then engage with professional advisors, including lawyers, accountants and tax advisors and wealth managers who can help you implement the plan.

1. Understanding the family component is key

What makes a family business successfully able to work effectively across generations and transition from one to another? Clear management of two related issues; how the family component interfaces with and influences the business and how the business interfaces with and influences the family.

It is therefore vital to understand which family members are active in the business, which family members are non-active and whether / how many family members wish to be included. In addition, those who bring positive contributions and those who contribute less, as well as whether any skills are present or are lacking.

To gain this understanding as well as conduct an effective succession process, three things are required.

• Regular and effective family business meetings involving active family members.
• Regular and effective family council meetings involving the active family members and the non-active family members.
• Family business rules to articulate the scope of engagement of active and non-active members in the succession process.

These should also contain principles for good governance of these meetings, standing agendas, responsibilities and conflict resolution procedures. It is also helpful to hardwire cooling off mechanics into the rules to manage scenarios where emotions interfere with the running of the meetings. We can help you prepare these rules which can be helpful in bringing a degree of remoteness and impartiality to proceedings.

1. Ownership responsibilities and management responsibilities are separate

The hard work in business is not ownership, it is management. For a family business to succeed, whether in the first, second, third or any other generation, the business must be healthy, effectively run and driven hard by people prepared to commit fully to see it succeed.

First generations often see successor generations as less committed, whilst successor generations can see earlier generations as “old school”. It’s important to bring these generations together and create a unity of purpose which reflects all active family members’ motivations and aspirations for the business. By doing this, successor generations can impart a level of comfort that they understand what is required, have legitimate interest and ambitions for the business and are equally motivated and driven to take the business to the next level.

Gradual introduction of management-level responsibilities, constant feedback on a commercial rather than familial basis and upskilling alongside external support is the essential precursor to ownership succession.

Beyond Corporate’s multi-disciplinary team understands the issues and complexities that can face family businesses. We regularly support and advise family businesses with effective succession planning, providing specialist, practical and timely advice that reflects the evolution of the business and the family dynamic over time.

Get in touch with Beyond Corporate’s knowledgeable and highly experienced team today: [email protected] or +44 (0)161 507 7110