Who will run the business after you?
As a Family Business Owner, you will be well grounded in the many things that you need to deal with on a daily basis to keep your business going. Besides the daily stuff, when did you last stop and consider what happens next? You died yesterday! Any thoughts?
Why Do I Need a Business Succession Plan?
The key to success is to balance the Private with Business, or, Private with Commercial.
If you own and run a Family Owned Business, the principal reason to make a Business Succession Plan is, that your family will benefit from one, many, many times over; than being without one.
When a business owner dies and has no such plan in place, then the process of dealing with his business estate gets mixed up with his personal estate and the ‘legal eagles’ have a ‘field day’. Unravelling the legal mess is costly in both time, money, and stress; not to mention the loss of business while this is going on.
Put yourself into your family’s shoes and your employees’/partner directors’ shoes for a minute. If you were he/she, would you rather have a relatively easy time or a difficult one? Would you want to know as an employee, if you have a pay-packet next week because the business is intact; or as a partner, a business to run; or as a family spouse/child an inheritance?
How to protect the Family Owned Business
As the owner/director of your Family Owned Business; your Business Succession Plan is the instructions for your family and company community, to apply upon your business estate, after you have died, or even retired. It segregates the business interests from your family interests and helps to smooth the terrain that needs to be crossed at a difficult time.
Depending upon the circumstances and the personalities involved, matters may very likely end in a court battle due to interested party conflicts; if it's not planned ahead. Do not be surprised if the feud denudes much of your family estate value, which you wanted to go to your loved ones. What would you prefer? Easy or hard?
What is a Business Succession Plan?
Business Succession Planning is perhaps one of the most underrated and overlooked elements of running a Family Owned Business. It is not the most immediate thing that comes to a business owners mind; what with having to deal with the day to day duties to bring in turnover and profit – the bread and butter. However, without it, your business could cease to exist the moment that you do. It can also happen when you are not dead, but seriously ill for example. You need to ask yourself the question “what happens when I …?”
The future and the ‘what if?’ is like the land of ‘far, far, away’, in most business owners’ mind. This is why the statistics show so many businesses being caught out, leaving the survivors to pay the penalty. As a business owner, you will no doubt, have come across Murphy’s Law, which says - “if it is going to happen, it will do it at the most inconvenient time”. Has this happened to you in some menial matter, like forgotten keys, say? That, no- doubt, was very annoying; but relatively easy to sort. Just imagine it magnified a trifle and the after-shocks that comes with it.
How to preserve you Family Business for the Future
Outside of business, when a ‘private person’ dies without having prepared his Will, ( for simplicity I will use the personal pronoun ‘he’) the Government must step in and take over his personal affairs because nobody has been given any authority to act on his behalf. This is called ‘intestacy’, and matters must follow a fixed formula. It is a hard-wired procedure so there can be no discussion or offer.
When a ‘business owner’ dies without having prepared his Will, the government has to step in to decide what happens to the business, because nobody has been given the authority to act on its behalf. However, things reach a whole new level of complication in contract law. If the business is a sole trader, it is one thing. If the business is employing others, or in partnership with others, it can be a mine-field of consequences.
Learn from the mistakes of others, not your own.
Even if you have prepared your Will and left things “all to my spouse”, the implications are that your business which your spouse may know little about, will suffer and die for want of appropriate knowledge and management. And then again, if you were in a partnership, things could end in a conflict over who gets what; in court.
Additionally, as a trading business, you are eligible for what is called Business Property Relief from the tax man. This could be a 100% tax relief on the transfer of your business value to a beneficiary. i.e. ZERO TAX on the transaction. Zero any tax. If however, your Will is of the usual ‘Simple Family Will’ variety, then your business forfeits this tax relief, and your family may end up having to pay full inheritance tax as well as other tax.
Hence; preparing these matters with good qualified counsel should be a priority in your business management. With regular maintenance it will keep the relationship between family and business a happy one. Going cheap in these circles is usually a false economy.