Family businesses play a vital role in the UK economy, and the Institute for Family Business (IFB) is dedicated to helping family businesses remain successful for generations to come. We asked Fiona Graham, Director of External Affairs and Policy, to explain the importance of successful succession planning for family businesses.
The recent survey published by Octopus Investments confirmed something that we at the IFB have known for a long time, namely that inheritance planning can be complicated, awkward and, in some cases, taboo.
And for those who run their own business, it is often the case that day-to-day operations take precedence over thinking about the future direction of the business, especially when it comes to succession planning.
Thinking about who is going to run the business after you can be a very sensitive topic, and one that gets postponed too often. Putting off those discussions can lead to a sudden or chaotic change in leadership, with a knock-on impact on the success of the business.
But the good news is, taking some simple steps early on can help family businesses owners to put their business on sound footing for the future.
Engaging the next generation
Engaging younger family members in the business from an early age is key for a smooth succession. Whilst it is important that the next generation has the opportunity to learn and gain experience outside the family business, it’s also important to keep them involved.
This will help you nurture responsible owners and help them get a sense of belonging in the family enterprise.
Your kids might want to do something entirely different from what you do, but this does not mean that they cannot engage in the family governance now, or that they will not decide to join the business later on.
Think about your own future
Succession planning should not be only about the next generation. When planning succession, you should think about yourself as much as your successors.
This can be hard. But exploring your interests and what you plan on doing when you retire can prevent a bigger crisis later on. Passing the business on does not mean you cannot still play a role in it, or that you will cease to be an owner.
Creating spaces to discuss your plans openly with your family is the only way to smooth this step of the process.
Align the family and the business
In family business, feeling and emotions play an important part. Having a clear governance structure that defines roles and responsibilities, now and in the future, helps prevent conflict.
As long as everyone understands how things are done, who does what and why, and who gets what, misunderstandings can be avoided.
Smooth and effective communication that flows between all stakeholders across generations goes a long way in helping the long-term success of a family business.
It is important to keep in mind that open and honest communication means different views and ideas will be shared. This is what we call ‘healthy conflict’, which should be encouraged.
This can be facilitated by an external expert to ensure dialogue remains positive and constructive, and is not emotionally driven.
Remember… you’re not alone
Thinking about your future and planning what happens next can feel overwhelming and isolating. It’s important to remember that you are not alone. Many other business owners have been through the same process with great success.
In our experience, family business owners are happy to help others going through succession planning issues of their own. A network like the IFB is a great place to share your thoughts with other family businesses owners and hear their stories.
To find out more about the Institute for Family Business, visit ifb.org.uk.