5 essential succession planning steps to secure the future of your family business

Running a family business is more than just a job. It demands time, energy, money, and unwavering commitment.

With endless tasks from bookkeeping to administration, and many people depending on the business, it’s easy to let future planning slide. But if such conversations and plans remain at the bottom of your to-do list, the continuity of your legacy may be uncertain.

A study by STEP found that 69% of family business owners lack a succession plan outlining who will own and run the business after their death, and only 32% have an up-to-date will.

Without a will or a clear succession plan, your business could end up in the hands of someone you didn’t intend, or it may pass to a family member who isn’t prepared to take it on. It could also mean that the transition isn’t structured efficiently, potentially leading to a financial loss. These oversights could spark conflict and uncertainty, and could put everything you’ve built at risk.

Read on to discover five succession planning steps that could benefit your family business.

1. Start the conversation

Communication is key to succession planning, but it can often feel uncomfortable because it entails wider conversations about aging, inheritance, and mortality.

But you don’t need to have all the answers right away. Simply letting your loved ones know you want to talk about the future of the business is a valuable first step. While none of us can avoid life’s inevitabilities, sharing your wishes with family can spare them significant stress and expense later on.

Starting this conversation early allows you to prepare for the next phase or consider alternative options, whether your preferred successors are ready to step up or decide not to take on the role.

If they’re willing, you can collaborate to create a long-term succession plan that enables you to gradually step back as they take the helm. If they’re less interested, you’ll have time to identify and prepare other potential options.

2. Determine your values

Family businesses are built on values, and while these may evolve over time, maintaining a core ethos is essential for upholding standards and making long-term decisions. This foundation can help ensure consistency and trust, and can build an identity across generations.

Each new generation brings fresh perspectives and skills, whether it’s expertise in new technologies, markets, or management practices. But at the heart of it all is a crucial question: what does your family business truly stand for?

Your values might include a commitment to quality craftsmanship, exceptional customer service, sustainability, community involvement, or innovation.

Clarifying and honouring these core values not only strengthens your brand but also unites family members around a shared purpose, helping the business thrive through any changes and challenges that may come its way.

3. Create an exit strategy that maximises efficiency

When transferring ownership of your business – whether family-run or not – it’s crucial to have a well-defined exit strategy. This plan should outline how you will transition ownership, secure your financial future, and support the ongoing success of the business.

You might think about things like the timing of your exit, the implications for stakeholders, and what taxes you may be liable for.

For family-owned businesses, there are additional considerations, especially regarding Inheritance Tax (IHT).

For instance, Business Relief (BR) can reduce the IHT liability on qualifying business assets by up to 100%, helping you pass on more wealth to your loved ones.

However, BR comes with strict conditions, including how the business is structured, how long you’ve owned it, and how it operates, and only certain assets qualify. Because of these limitations, it may be a good idea to explore complementary strategies.

For example, gifting some business assets to your beneficiaries during your lifetime could enable you to make use of further exemptions and allowances, potentially reducing future tax liabilities. Setting up certain types of trusts can also be an effective way to transfer assets.

A financial planner can work with you to ensure you maximise the efficiency of your succession plan by finding transition strategies that align with your wider estate planning goals.

4. Update your documents

If you don’t yet have a will, it’s important to create one as part of your succession plan. If you already have one, ensure you regularly review it, ideally every five years or whenever your circumstances change, such as after a birth, divorce, or new marriage.

It’s also a good idea to update any letters of wishes you have to provide guidance on your intentions for non-legal matters, such as how you want your business managed or how you hope your family will be involved.

Additionally, you might consider registering Lasting Powers of Attorney (LPAs) for both financial and health decisions. These documents allow someone you trust to manage your affairs if you become unable to do so, helping to protect your business and family during unexpected situations.

Together, these steps create a strong foundation for your succession plan, ensuring your wishes are clear, your family is protected, and your business can continue to thrive.

5. Work with a financial planner

Whether you’re just starting the conversation or refining an existing succession plan, a financial planner can make all the difference.

They can help you clarify your personal and familial goals, explore tax-efficient strategies, and ensure your business and your family are well prepared for the future.

To speak to a financial planner, get in touch.

Email [email protected] or call us on 01625 466360.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

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.

The Financial Conduct Authority does not regulate estate planning, tax planning, trusts, Lasting Powers of Attorney, or will writing.