Succession can be the kryptonite that kills off the successful company – it is complex, often contentious, difficult to effect smoothly and, of course, inevitable. The statistics sound a very clear warning note: one in three family business fails within the first three years; less than 30% of family firms (40% in the USA) make it to the second generation; only 10% (13% in the USA) of those succeed to the third generation. It is clear that succession is something to be handled with great care.
The mistake we see again and again is an inability to take a long-term view of the succession process. What tends to happen is that succession suddenly casts its long shadow following a health scare for the owner, or when the children start to marry and the marriage contract presents a new dimension to be considered, or when the eldest child snaps and aggressively demands promotion and recognition. These are far from ideal circumstances in which to tackle such a wide and challenging set of interlinked issues.
We immediately make our clients aware of the fact that succession must be treated as long-term process and planned for meticulously and well in advance, otherwise it poses a very real threat to wealth. We understand that the difficulties involved can be as much emotional as economic, but with honest communication and a will to put the business and its needs first, succession can be a positive strategy that fuels change for the better. When you have an expert advisor in the room guiding the succession process, it makes that process much easier and far more effective.
Our role is to facilitate the creation of a strategic Succession Plan. This requires open and honest discussions with the current owner – discussions that tackle every single facet of the planning and implications of the handover. Resistance on the part of the owner can stem from various concerns – that none of the children is ready to step into the role of owner, that customers might not accept a new face, that staff might react adversely to the new boss and the various ramifications of the transition. These are all valid concerns that must be tackled head-on and discussed honestly.
Once the process is in train, the key step is to draft an agreed Plan that sets out a proposed date of retirement, the nominated successor, revisions to other roles resulting from the change of ownership, new communication channels and reporting routes, dividends, shares, remuneration and voting rights, and deadlines for each stage of the ‘stepping back’ process. It will take many discussions and meetings to arrive at this Plan, but once it has achieved consensus, it becomes a powerful tool to guide and drive the business into the future.
We help you draw up the Succession Plan by adopting a cross-departmental approach, bringing in our experts in wealth management and tax planning to ensure you receive all the advice and perspectives necessary to the process. While there can be difficult moments in this process, we find that in practice it is an interesting, invigorating and important exercise that stimulates deep analysis of the business and its future direction and focused strategic planning to achieve the aims identified. With our help, succession is the lifeline of the business into its future.
