Two thirds of family business owners (66%) intend to pass their business on to a family member, according to a survey by Hymans Robertson Personal Wealth. When it comes to making their wishes a reality however, only a third (34%) have formal succession plans in place. Although encouragingly nearly half (46%) are in the process of developing plans, as many as a fifth (19%) have no succession plans, at any stage of development. The lack of succession planning for so many family businesses is a concern, claims the financial wellbeing firm.
The research from Hymans Robertson Personal Wealth examined the challenges that family business owners are facing when it comes to succession planning. The firm wanted to understand the concerns that are front of mind when it comes to family dynamics, business continuity and protecting a business legacy.
Commenting on the need for succession planning to be an open and honest conversation, Jeff Simpson, Financial Planner, says:
“Family businesses are a special type of business, often built up over years of hard work and personal sacrifice. When it comes to succession planning, it is only right that a long-term view is taken and that looking five, ten, even twenty years ahead should be considered to be the norm. With 92% of respondents agreeing that they would like to keep their business in the family, this reiterates the need to ensure the groundwork is done in advance, to help make the transition as smooth as possible.
“Family business owners face a myriad of issues and challenges from family dynamics and finances, right through to Government changes. Transferring ownership is a deeply personal and complex journey that goes beyond financial decisions. The economy, combined with changes that impact business put in motion by the relatively new Government, must not be forgotten as part of the mix. Over half of family business owners, 52%, have adjusted their succession plans in response to recent changes with many making significant adaptations to their previous plans. Concerns about tax, the increased operational cost and cash flow challenges are just some of the examples cited where worries are rife.”
The analysis highlights that worries about ownership transfer are a real issue for those wanting to keep their business in the family. Almost all (92%) of family business owners wish to pass on their business to family members, yet only two thirds (66%) are realistically intending to do so. The reasons for this are clear. A third of family business owners (36%) are worried about creating family disharmony in the succession process and a third (33%) are concerned about maintaining the company values when the transfer is complete. For those not planning to transfer to family, over a third (38%) believe that their family members lack interest or the capability to take over, with a further quarter (27%) lacking a clear succession plan, as no family members are interested.
Commenting on the difficulties that family business owners face when navigating family dynamics, succession planning and government changes, Jeff Simpson, Financial Planner, continues:
“Financial planning and family dynamics are a complicated mix, and from our research we know that many people believe that the next generation is not fully prepared to take over. Well over two thirds (70%) of respondents have concerns about the financial planning and wealth management aspects of a family transition. There is a real gap in terms of support and training which must be narrowed to help lead these businesses to success. Providing greater access, and most importantly signposting where to go for help, is imperative if this fear is to be allayed.
“The insights from our survey underline the importance of early planning, addressing the readiness of the next generation, and seeking expert guidance to help overcome the unique challenges of ownership transfers. By taking these steps, family businesses can approach this critical process with more clarity and ensure a smooth transition that protects their family’s legacy for generations to come.”
Putting ownership plans into action is a critical element of succession plans. For those that do have plans, professional advice and guidance is key – legal, tax and wealth advisers are the main professions that should be consulted. A third of those surveyed (36%) have never sought professional advice regarding the transfer of ownership. These findings show the vast gap between planning and reality, and that a more proactive approach is needed. By seeking professional advice, it will help to ensure that those involved in the succession of the business are in agreement. This will help with the ease of transition, remove the pressure on current owners and ensure the long-term survival of the family firm.
A copy of the report can be found here.