Is Your Business Ready to Run Without You?
You may have heard the saying “from clogs to clogs in three generations” – one generation builds the family business, the next grows it and the third loses it.
But family businesses are at the heart of the Northern Ireland economy. Many have been built over decades, employ generations of local families and have deep roots in their communities.
So perhaps the better question isn't whether a family business can survive beyond the third generation.
It is: What are you doing now to make sure yours does?
That is what succession planning is really about.
Not simply deciding who gets the shares when you retire, but working out who will own the business, who will run it and how you get from where you are today to where you want to be.
What do you actually want?
Start with the end result.
Do you want to:
Pass the business to your children
Hand the reins to your management team;
Retain ownership but step back from day-to-day management; or
Ultimately sell to a third party?
Each option requires a different plan.
And the earlier you decide what you are aiming for, the more time you have to get the business – and the people – ready.
Who owns it and who runs it?
These are not necessarily the same thing.
Imagine you have two children. One has worked in the business for ten years. The other has built a career elsewhere.
Should they both own the business equally?
Should they both be directors?
Should the child who runs the business own more of it?
There isn't one right answer.
One family member might run the business while others remain shareholders. The next generation might own it while an experienced management team runs it. Or the right person to lead the business might not be a family member at all.
Ownership and management don't have to pass together.
Recognising that early can open up far more options.
Could the business run without you?
Here is a useful test.
If you weren't there tomorrow, what would happen?
Who would make the big decisions?
Who holds the key customer relationships?
Who deals with the bank?
Who understands the numbers?
Who manages the senior team?
How much important knowledge exists only in your head?
If too many of the answers come back to you, there is work to do.
Don't assume the children want it
Passing a family business to the next generation can feel like the obvious plan.
But have you actually asked them?
One child may be interested and another may not. They may want to own shares but have no interest in running the company. Or a long-standing member of your management team may be far better placed to lead it.
Those conversations need to happen early.
And don't overlook the people outside the family.
Your key employees may be essential to the next chapter of the business. You need to think about how you retain them, develop them and give them a reason to stay.
In some cases, that may include giving key people a stake in the future value of the company through share options or other employee ownership arrangements. '
Employee ownership can be used both as part of ownership succession and to retain and incentivise important people.
Does the structure work for where you're going?
You also need to look at what sits underneath the business.
Perhaps everything is currently in one company, but you want different children to take different parts of the business.
Maybe the trading company owns property or other assets you want to keep.
Perhaps you want to give the next generation shares but retain control while they find their feet.
Or management may gradually acquire an interest in the business.
The structure that got you here may not be the structure that takes the business into the next generation.
The earlier you identify that, the easier it is to plan any changes rather than trying to reorganise everything when succession is already happening.
Does your Will tell the same story?
There is another part of succession planning that business owners can easily overlook.
Your Will.
If you personally own the shares in the company, what happens to them if you die?
Who gets them?
Does that fit with the company's articles and shareholders' agreement?
And, most importantly, is that the same person or people you have been preparing to take the business forward?
A Will allows you to decide how your assets should pass rather than leaving the outcome to the intestacy rules. It also provides an opportunity to consider your wider assets, liabilities and tax position.
Your Will, shareholders' agreement and succession plan should therefore be telling the same story.
You don't have to hand over the keys overnight
Succession can be gradual.
The next generation can take on more management responsibility.
Family members can join the board.
You can transfer some ownership while retaining control.
Key managers can become shareholders.
And you can gradually move away from day-to-day management while remaining involved as a director, shareholder or adviser.
For many family businesses, that transition may happen over several years.
The important thing is that it happens by design, not by accident.
So, are you ready to pass the baton?
You don't need to be retiring next year to start planning.
Ask yourself:
Who do I want to own the business?
Who is actually capable of running it?
Do they want to?
What do they need to learn before I step back?
Could the business operate without me today?
Does the company structure support my plan?
Does my Will match it?
If some of those questions are difficult to answer, that is probably a sign that the succession conversation needs to start.
Because passing the baton isn't one transaction that happens at the end of your career.
It is a process of making sure the next generation is ready to pick it up.
How Daly McCormick can help
At Daly McCormick, we help business owners and families plan what comes next.
Whether that means passing the business to the next generation, bringing key management into ownership, restructuring the business or preparing for an eventual sale, we can help put the right legal arrangements in place.
Working alongside your accountants, tax advisers and other professional advisers, we can help turn “what happens when I step back?” into a practical plan for the future of the business.
Your business. Our legal expertise.
Dungannon, Belfast, Omagh
02887441840
Disclaimer: The information provided here does not, and is not intended to, constitute legal advice. Instead, the information and content available are for general informational purposes only.
