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Navigating the generation divide is critical for family businesses

Posted: 11th July 2016


Peter Tweedie (6)

Many businesses don’t survive the transition from first to second generation. Peter Tweedie, Chairman, Lindsays, has some advice on succession planning.

Most corporate lawyers have a ream of stories about family businesses. They can be role models of cohesive management and stewardship. Or horror stories of boardroom fighting, family feuds and sibling rivalry.

One rich source of horror stories is the issue of succession. What happens if family members have conflicting aspirations for the business? If siblings or cousins can’t work together? If too many (or too few) of the next generation want to take over?

These scenarios, and countless others, can jeopardise both the business and family relationships. None of the UK’s 3 million family businesses, however well-managed or harmonious, is immune to them, yet over half these businesses have no succession planning in place.

The worst strategy for succession planning is to ‘wait and see’ or let things take their course. It’s a popular approach, because conversations about ageing and finances can be awkward, and there are always more urgent management tasks to address. But early planning and seeking the relevant professional advice is essential in the context of family succession.

Generally, discussions about succession should encompass three main elements: future management of the business, ownership of the business, and the taxation consequences. It’s frequently the case that too much attention is focused on the technical aspects of succession, and too little on the people aspects, such as family dynamics and values.

A successful strategy for succession will equip the business to thrive in future while offering the older generation a timetable for handover and a sustainable retirement plan. There’s no set formula for achieving this, since each family and business is different. The strategy and structure is important but family business succession is never just a question of thinking about the legal or accounting framework: both the family and its professional advisors must consider the people component too.

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