91Ï㽶»ÆÉ«ÊÓƵ

It may be your dream to keep your business in the family but you need to consider the commercial implications of doing so. It's important to balance your emotions with hard reality.

Long before you intend to retire, you need to ask a number of key questions:

• Does your intended successor really want to take over - or do they feel obliged to do so?
• Does your intended successor possess the right skills and attributes?
• Is someone else in the business - eg a non-family manager - better placed to take your business forward?
• Will nominating your successor set up conflict in your business - perhaps between individual family members or with other employees?
• Will family succession provide sufficiently for your future?
• Will family succession be tax-efficient? Read more about tax implications of family succession.

You need to consider both your management and ownership roles before coming to any firm decisions. It may be that instead of family succession you should be considering other exit options, such as:

• a trade sale
• a management buy-out
• stock market flotation
• winding up the business

Read more about how to consider your exit strategy when starting up a business.

It can help to involve a third party in these important decisions. For example, a non-executive director or your business adviser can provide objective advice.

The best way to hand your business over to your family is to nominate a single successor from among your offspring or other relatives involved in the business. This isn't always practical or realistic, however.

In making your decision you must:

• determine objectively who can best take your business forward
• aim to reduce the potential for future conflict

Successful communication with all family members is crucial to making any decisions.

Remember that there are other ways of being financially fair to your offspring or other relatives without involving them all in the future management of the business.

For example, you could take out a life insurance policy for those who won't benefit from inheriting the business. Or you could split your business' shares into two classes - giving full voting rights to your successor and restricted or non-voting rights to family members with no managerial involvement.

If nominating more than one successor is your chosen option you should ensure the co-successors have a similar vision of the business' future and a similar commitment to it. To limit the potential for conflict - which could even lead to the break-up of the business - it can help if you:

• determine separate areas of responsibility for each successor
• put in place formal dispute-resolution procedures
• appoint an independent board of directors

Any family member you nominate to take over your business must:

• demonstrate leadership skills
• possess the required skills and competencies to run your business
• be fully committed to the role
• have the full 91Ï㽶»ÆÉ«ÊÓƵ of others in the business

It's important to conduct discussions early on with possible successors. To help you put personal issues aside when considering the commercial future of your business, ensure you hold these discussions on business premises rather than at home.

And remember that although you might dream of one of your children taking over, he or she may have other aspirations.

It can help to take advice on who is the best person for the role from an objective outsider such as a non-executive director, business adviser or accountant.

Your successor should have both strategic plans and a vision for your business - though you may need to accept that these may be different from your own. Skills that may, for example, have helped you set up your business won't necessarily be the same as those needed to develop it further.

It can also help if your successor has at least a few years' outside experience. This will introduce fresh ideas into the business and is likely to make them more acceptable to non-family employees.

One of the hardest things to do in business is to step down. It can be particularly hard if your business is a family one you have been running for years.

You can make things easier for yourself if you:

• clearly determine any future role you may have in the business
• accept that you're no longer in charge - though your advice and 91Ï㽶»ÆÉ«ÊÓƵ will be invaluable, your successor may have ideas very different from your own
• plan other activities to continue to lead a fulfilling life after you leave the business

It can, though, still be hard not to interfere in the business if you are financially dependent on its success. If you're retiring, you may find it easier to take a step back if you have personal pension arrangements that are separate from the business.

Another way of achieving this distance is by arranging a family management buyout, in which family members - either alone or with outside help - finance a buyout of your shareholding.

Remember, it's very important your successor is allowed to assume their role freely. If they can't, they're likely to become frustrated and the business may suffer. It can help if you remember that change is often necessary for a business to develop successfully.

The key to a successful management transition is effective succession planning. This process could start as much as 15 years before you intend to step down. It is good business practice to include a written succession plan within your overall business plan.

This should contain:

• your key goals
• a timetable of the transition stages - from identifying a successor to the staged, and then full, transfer of responsibilities
• contingency plans in case the unforeseen happens, such as your intended successor declining the role

It's particularly important that you allow your successor an adequate training period. This time can be used for on-the-job and/or more formal training. You should also include time for the development of business and leadership skills.

One way to manage the training programme is for your successor to gain experience in other businesses. This allows them to gain independence and bring fresh skills and ideas to the business.

You might also allow them to gain knowledge of all aspects of your business by spending time working in each area of it. A key advantage of this method is that the successor is also meeting - and possibly being trained by - your key personnel.

Also consider whether it's best for you to phase in your departure by gradually transferring some key responsibilities to your successor or possibly reducing the days you work in the business.

Remember - communicating your plan to your family and management is essential and will help prevent misunderstandings and future conflict.

Think carefully about the tax implications of family succession.

Business Asset Disposal Relief

You may be able to pay less Capital Gains Tax when you sell (or ‘dispose of’) all or part of your business.

Business Asset Disposal Relief was known as Entrepreneurs’ Relief before 6 April 2020.

Read more about .  

Inheritance tax reliefs

You may qualify for business-property relief from inheritance tax if you sell or pass to relatives:

• your business
• an interest in your business - your share of a partnership, for example
• shares in your limited company

Find out more about .

Capital Gains Tax

If you dispose of your business to a relative, other than your spouse or civil partner, you may have to pay Capital Gains Tax on any gains made on these 'assets'. Note that the open market value of the assets of the business may be used in calculating the taxable gains if the disposal of an asset is for less than this value, or for something that cannot be valued.

Read more about Capital Gains Tax.

When examining your options, always seek expert advice from your accountant and solicitor.