Your business-owner clients will have lived through a tough couple of years. Coronavirus closures, furloughed workers, and reopening into a post-pandemic world will all have presented unique challenges.

For those clients with a family business, these challenges might have been that much tougher.

Managing shifting family dynamics and expectations, all while focusing on what’s right for the company, can mean making some difficult decisions. And these decisions only get tougher when the time comes to pass the business to the next generation.

Here are a few important questions your clients will need to ask themselves.

1. Is there a natural successor within the family?

Some family businesses stretch back generations while others might be relatively new propositions. Ideally, if your clients are looking to keep the business within the family, they’ll need to have an obvious successor in mind and bring them into the business early.

A new owner will need the passion to make the business work, as well as the expertise. Pride in the family name might be enough to provide the passion, but expertise only comes from hard work over a long period.

A shared surname might be sufficient to keep the business in the family, but without commitment, there is a limited chance of the company’s continued success.

2. Does the chosen successor have the trust and respect of employees?

A long career within the company allows your client’s chosen successor to work their way through the business, gaining knowledge of the company, and the trust and respect of colleagues. Bringing a successor into the business too late could sow discord and make for a fractious working environment.

Communication will be key. Your client will need to be sure that their chosen successor not only wants to take over the business but that they are the right person to do so.

Current staff will need to be made aware of the plans for succession to avoid mistrust, jealousy, or envy. These issues could also be a problem within the family, even among members who have no desire to be part of the business. Transparency at all stages will be crucial if the handover is to run smoothly.

3. What if it is time to sell?

If there is no obvious successor within the family, the option of selling will need to be considered.

A business run by a family member who lacks the passion or drive to make it a continued success could become unsellable in the future, or the business might fail entirely.

Long-term members of staff from outside of the family might want to take the business on and maintain the family ethos. They will likely have the passion and understand the unique selling points of a tight-knit staff team working within a family business.

This ethos will be crucial too if a business owner looks to sell the company to outsiders.

A business owner will understand that it is their company’s history, values, and processes that made the business a success. Any potential buyer will need to understand this too.

4. Why now?

There are many reasons why an individual might decide it’s time to move away from their business. Your client might be:

  • Taking a higher paid or less stressful job elsewhere
  • Looking to sell all or part of the business in order to start a new company
  • Reaching retirement.

Succession is an exit strategy to a new chapter in an individual’s life and it is crucial that your client remembers this. It also pays for them to be sure about what that chapter will look like.

A long association with a company can create deep emotional ties, and make stepping away from a business tough. Talking to someone who has been through the process already can be particularly useful, as can speaking to the experts.

5. There are important tax implications to consider when opting to sell a business

If your client opts to sell their family business, they’ll need to consider the Inheritance Tax (IHT) and Capital Gains Tax (CGT) implications of doing so.

Understanding how and when Business Asset Disposal Relief (BADR) applies could reduce your clients’ CGT liability, possibly by 10% in some circumstances. If BADR applies, it does so up to a lifetime threshold of £1 million.

Business Property Relief (BPR) allows for an IHT-free transfer of shares in some circumstances, which can be a great way to pass shares in a business to the next generation.

Both BADR and BPR can be complicated and ensuring that a business disposal fits into a long-term financial strategy requires careful planning. Individuals must seek professional advice before making any decisions, and at Boolers, we have the expertise to help.

Get in touch

If you have business-owner clients who benefit from understanding how their succession plans fit into their overall financial strategy, please get in touch. Email or call 0116 240 7070.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.