PLAN EARLY In association with Grant Thornton

Brendan Lane, Director Corporate Services, Grant Thornton

It is crucial for any owner-managed business to plan early for the smooth transition of the family business from one generation to the next, writes Brendan Lane.

Family run businesses should really be thinking about succession as early as possible. Whether they have a family who will take over or whether they plan to sell the business, either way a plan needs to be in place if the changeover is to be successfully achieved.

If family members are keen to become involved in the business, it is imperative that a plan be devised as early as possible so that the founder can hand over the business efficiently and with as little upset to it as possible.

WINDING DOWN

Although there are certain people who work right throughout their life, generally speaking once a person gets over a certain age they are starting to play an end game. They start to think about their retirement and consolidation and who is going to carry on in the future.

But an end game doesn’t suit business because a successful and growing business wants and needs young people who are playing an opening game and who are prepared to take risks and expand rather than consolidate.

SEEK OUTSIDE ADVICE

SEEKING OUTSIDE ADVICE CAN BE BENEFICIAL TO BOTH PARENTS AND CHILDREN

It is important for all involved to talk openly and to express what they are thinking. Often you find that some children don’t want to be in the business at all or sometimes you get a remarkable level of agreement as to who should be doing what. Frequently it needs an outsider to elicit the truth. Firstly, there should be a job description agreement and, secondly, there needs to be a shareholders agreement. If the next generation are going to inherit then they are going to have to know what will happen if one gets divorced or if one dies. It is very important to have these written agreements. Although for a family these agreements may seem very formal, they are necessary and most families are grateful for somebody putting these greements together because they provide clarity and reassurance and peace of mind for the retiring founders.

If it becomes apparent that no family members are going to be involved in the business then the founder should also identify this early and make the necessary provisions. In certain cases the founder may decide to fatten the business up over a number of years in order to make it an attractive proposition for a potential buyer.

If, on the other hand, a family member is going to take over the business, the founder is almost certainly going to have to make outside investments such as a pension type investment to ensure that, when the business is handed over, it won’t be burdened by one generation trying to support two.

MANAGEMENT INCENTIVES

If you are looking at your family to succeed and you are not building the business up for a sale, it may be that you need to hire in people who could supply qualities that are perhaps missing or which you perceive to be missing in your children. You may have to bring in management and, if so, you need to consider the whole aspect of how you will entice management and what provisions you are going to make for this arrangement to work.

Are you going to allow shareholdings to people who are not, in fact, part of the family and, if you are, what way is that limited so that everybody understands their entitlements. Generally outsiders are not willing to walk into a situation where they think there is no chance of their getting a share of the action, but, if a written plan or agreement is in place, then everybody knows where they stand.

If you are planning for your family to take over the business, you should try first to send them to an outside business similar to your own, not alone for them, but also to see how other businesses are doing things. Not only will they be more mature after the experience but it will also ensure that they bring benchmark standards and new methodology into the family business.

PLAN EARLY FOR SUCCESSION

Historically family businesses do not plan sufficiently early for successful succession. Hence there are often problems, especially if there is more than one child involved. How can parents promote one child without offending another? How do parents deal with children who have recognised talents useful to the business? Recognising and dealing with these issues at an early stage reduces the prospect of conflict in succession.

As soon as a successful succession arrangement has been achieved, it is time for the new team in place to start planning for their succession. In this way a seamless succession can take place.

Clearly things are improving with regard to succession planning. There is plenty of wealth in Ireland today and people do have worthwhile businesses to pass on to the next generation.

Although many family owned businesses are putting viable plans in place, there is still some way to go before succession is properly planned well in advance.