Business Finance: David Nicolson on the importance of succession planning
The large majority of the UK economy comprises of owner-managed businesses, whether in the form of a limited company, a partnership or some other structure.
It is, therefore, vital for a thriving economy that businesses are able to develop and grow beyond the original owners, otherwise the hard work put in cannot be capitalised on and the business taken to the “next level”.
For some family businesses, succession planning is not an issue to be considered. The strategy is to build the business and then sell, realising a capital sum for retirement, although this may not always be achievable as the price offered may not match the owner’s expectations. A choice will then be required either to sell at a lower price or pass the business to other family members in the anticipation of a future successful exit strategy being achieved.
For the majority of family businesses, however, the strategy is to introduce suitable family members who can benefit from the goodwill that has been built up. For this strategy to be successful there are a number of factors that the owners should consider, and regularly review, to ensure that the business can, indeed, succeed to future generations.
Tax should never be the driving force in any business decision but it should always be considered, even if the strategy includes sale to a third party. The lack of a succession planning strategy could result in tax implications which were never envisaged, and could ultimately lead to the break up of the business to meet an unintended tax liability.
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Proper succession planning should consider how the management and the accumulated wealth of the business are passed on to the intended parties, whether they are family members or third parties.
Ensuring that the owner’s wishes are met, consideration should be given to the provision of business assets in a will and a shareholder/partnership agreement. There are valuable tax breaks available should these documents and the business be structured in the most tax efficient manner.
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Both owner’s intentions, and tax legislation can be subject to change. It is therefore important that any succession planning strategy is regularly reviewed to ensure the current strategy remains the vision, and remains tax efficient.
To help address the thorny issues of succession planning, Ensors and Howes Percival, solicitors, are hosting a seminar at Haughley Park Barns, Stowmarket on Thursday, September 12. To find out more and to register, please visit www.ensors.co.uk/succession_planning .
: : David Nicolson is tax manager at Ensors Chartered Accountants.