Exiting a Family Business

When making the potentially difficult decision to exit a family business and pass on the control and ownership to other family members, there are a number of factors that an owner should consider. While such action may seem a natural progression, serious thought and thorough planning are needed to ensure that certain pitfalls are avoided.

As a first step, the owner may find it beneficial to discuss and develop their plan to exit the business with the relevant family members who are to be involved. This should ideally be done at a very early stage, and if possible, a couple of years before the transfer. Such advance discussions can be useful to establish any potential issues and enable them to be resolved quickly and with minimal difficulty.

Early planning will also enable the proposed successor to be developed properly pre transfer to ensure a smooth transition for the successor, employees and customers of the business. This may involve enrolling the successor on management courses and growing their existing skills and expertise to ensure that they are adequately equipped to deal with the demands of running the business. To assist with the preparation, the owner may wish to set a date for their exit providing a deadline for their successor to work towards. Ideally, during this period the owner should “take a back seat” within the business. Considering that an owner may have spent a considerable portion of their life building the business this may be very hard for them to do, however, an owner should try and avoid the temptation to offer unsolicited guidance and potentially undermine their successor.

Another factor for the owner to consider is the financial position of the business. An owner will need to think about their requirements post retirement and what they intend to take from the business upon their departure. The business will want to organise its finances in a tax efficient manner and may need to make arrangements to sell or borrow assets to provide for the departing owner’s needs. Alternatively, the owner may wish to consider whether they intend to stay partially invested in the business. If they decide to do this, they must appreciate that the successors may not be too keen on the idea wishing to take complete control of the operations without interference.

A final factor for an owner to consider is whether the responsibility will be split between a number of family members, such as the children, or whether to appoint one individual successor. Splitting ownership between several people may cause problems further down the line as many competing interests and ideas will need to be balanced. For this reason, splitting ownership in this way is rarely advisable. As an alternative, an owner may wish to consider employing external management to take over the day to day running of the business, while retaining overall control, to encourage a fresh approach and new ideas.
If you are considering a departure from or restructure of a family owned business, HardingEvans can offer you professional advice and guidance to help you make the right decisions for your family. Contact us today to discuss what we can do for you.