In our ongoing series of articles, advice and insights in celebration of Family Business Week, this latest piece looks at the problems that can arise in even the most well-established family business and the impact of changing family circumstances.
There are many ways we help our family business clients, but it all starts with our unique understanding of family businesses, the cornerstone of the UK business community.
Responsible for nearly 30% of UK economic output and a significant proportion of private sector employment, we advise many and celebrate the diverse success stories of all the businesses that have built on their heritage to inspire the next generation to follow in their footsteps.
Keeping it in the family
For most owners, the building, maintaining and day-to-day operation of a business with family members will prove challenging and rewarding in equal measures.
Whilst the positives are obvious, family businesses present different ownership, management and succession challenges than those faced by traditional corporate entities. This is particularly true when it comes time to transfer the business to the next generation.
However, new challenges can be presented by unforeseen events, such as disputes within the family, or separation, divorce and death, all of which can create a range of issues that require a different approach from those that understand the workings of family businesses.
The time will come when you choose to pass the business onto your children, along with the responsibilities that transfer at the same time. You may want to treat all your children equally, those within the family business and those pursuing careers elsewhere, but you must protect your own interests and plan for your retirement.
Planning well in advance is key to a successful transfer and advice from those that have been this way before will present opportunities to minimise your tax liability and save your loved ones a painful tax headache after you have gone.
Succession planning within family businesses is a particular art, with the confines of a strict meritocracy blurred by familial relationships that bring a different dimension to the decisions that must be made.
The questions you must ask yourself are whether your children are interested in running the business and have the necessary skills? Are they considering the succession out of loyalty or because it’s what they really want for their futures?
If they choose to succeed you and run the business, are you hoping that they will have to rely on your experience when the going gets tough and keep you involved? Will you exit completely, or slow down and take on an advisory role?
This temptation to stay involved after handing over the reins, can be as problematic as cutting all ties completely. It can disrupt planning for the future, slow innovation and impede the growth of the business in challenging economic conditions.
Disputes within family businesses can often become personal, with sides taken by spouses and partners, which can easily ripple through the business and impact it negatively. Suppliers and customers need to see the family business is run professionally and not at risk from family feuds.
In the case of relationship breakdowns, a family business can form part of the assets to be shared on divorce, which in extreme cases could mean the business you’ve worked hard to build, needs to be valued and sold, to fund any divorce or civil partnership dissolution settlement.
There are a number of ways you can address the unique challenges faced by family businesses, starting with careful planning to identify and resolve likely issues, before they turn into serious problems.
In our experience, shareholder agreements, clauses in the company’s articles of association and the use of family trusts, can head off a lot of the most common issues, reduce stress and create a platform for the business to thrive, particularly when they are implemented early.
A shareholders agreement can help prevent the business collapsing if an issue arises, providing a backstop position for shareholders on certain key points. These points can include how to deal with the management and succession of key roles, what to do if a shareholder becomes ill or unable to work, retirement and pension arrangements, as well as dealing with family disputes.
Good timely communication between family members within the business is key to making sure it thrives. Putting the necessary legal agreements in place can provide invaluable support and peace of mind, with everyone aware of their responsibilities, whilst knowing the family business will not suffer if problems do arise.
If you would like more details of how Buckles can help your family business thrive in challenging times, please get in touch and one of our experienced team will explain the ways we can make a difference. Don’t wait until the end of the week though, let’s speak now.
