What to do When Your Last Succession Hope Vanishes

Succession planning can be tricky for family businesses at the best of times and constant changes to the family tree as individuals get divorced and re-marry can affect future plans.

For family business owners planning for retirement, there is nothing worse than finding out that their preferred choice of successor has decided to take a step back or has changed their mind.

For those tipped to take the helm, important life changes may trigger a desire to re-evaluate their position and lifestyle choices or pursue a change of career. In this situation, business owners can feel trapped and hopeless and persuading the ‘first choice’ successor to change their mind is often not an option.

However, all is not lost and the family business is unlikely to grind to a halt. With prior planning, family businesses can use ‘outsider’ input to their advantage while protecting the fortunes of the company in the process.

Using external experts is often a practical, logical and common sense move to inject much-needed relevant sector or management expertise which may be currently lacking.

Understandably, owners can be reluctant to let outsiders into the fold but the proof will be in the pudding. If the support and running of the business is up to scratch, the external expert could be in a position to take up the reins over a period of time.

To overcome concerns around losing financial control when bringing in new people, share options can be put in place to ring-fence finances or separate out the value of the business into capital ‘before’ and ‘after’ a new member joins the business. As a result, the new addition will take their share from the new wealth that they create, rather than what already exists.

If there is no clear path to succession, alternative exit routes can be explored to ensure that the business legacy, culture and ethos are maintained.

Making the transition to employee ownership is a viable option but can take some time. It enables owners to realise value in a tax-efficient way whilst preserving business continuity and ensuring there is a motivating structure for managers and staff going forward.

However, some business owners prefer not to have a clean break. Withdrawing from the operational side but retaining property as a long-term family investment can help give exiting owners more financial security while transferring ownership and the stresses of running the business to the existing management team.

To avoid being left in the lurch when preparing to exit, business owners should make sure they are communicating from an early stage with potential successors.

Taking a preventative approach by tying in key family members or other highly-valued managers can help to secure the long-term future of the business.

Putting in place a rewarding pay and remuneration package which comprises an option to assume ownership of a stake in the business or to assume control of part of the business once key milestones are achieved can also help to keep future successors interested and motivated.

Clearly succession planning can be complex for many businesses, even more so when the preferred choice of successor decides to change career path.

However, owners must explore their options. It is crucial that an in-depth analysis is conducted to identify what the business truly needs before anyone is tipped to take control and owners shouldn’t feel forced into making a decision that doesn’t have theirs and the business’ best interests at heart.