Succession in family business: a balancing act 

April, 2022 - Shepherd and Wedderburn LLP

 

Family businesses underpin the Scottish economy and most have endured a particularly turbulent few years. While many businesses have sadly struggled, others have adapted, and family businesses, in particular, have demonstrated a remarkable resilience and ability to positively respond to the market in these uncertain times.  

There is a familiar cycle of growth that all businesses face, from nurturing a fledging enterprise to sustaining early success and planning for the future. What can make matters more complex in a family business setting is the relationship between all family members – irrespective of whether they play an active role in the business, particularly when considering succession planning. 

No two families are alike and, following that logic, no two family businesses are the same either. Each has its own strengths and weaknesses, which can make transferring the business to the next generation all the more complicated. There is no magic formula to guarantee a smooth and successful transition but it is often a helpful starting point to consider the points of view of all parties when looking to the future.

Can parents strike a balance between equity v fairness?

Firstly, let us consider the parents who are running the family business. It can be helpful for the current family business leaders to look to the future and the next generation of leadership as early as possible. Considering who the next custodian (or custodians) of the business could be may highlight family members who are interested in becoming involved in the business or may highlight opportunities for training and support for those who are already involved but not quite ready to step into a senior role.

Many family businesses will likely not involve all the children. Depending upon the parents’ ages and stage of their lives, their thoughts may also turn to inheritance, estate planning and the need to strike a balance between equity and fairness of those children involved with the business and those who are not.   

Where possible, such conversations should be initiated sooner rather than later, particularly when considering the value of the business compared with other family wealth, such as property  or investments. This is not an easy comparison to make; the business’ worth will not necessarily be restricted to a monetary value, depending upon the views of the children and their plans for the future. 

Involving all of the next generation

Some members of the next generation may already be working within the family business or planning to join following completion of further education, while others may follow paths that lead them in different directions.  

For those who are involved, there may already be an expectation (either their own or set by others) or an ‘understanding’ that they will step into the shoes of their parents to run the business in years to come.  

Being appointed as a future leader of the family business may engender feelings of pride, recognition or trigger a real motivation for that family member to drive the company forward. We also regularly see, however, that such a role brings with it a heightened sense of responsibility and accountability not only to shareholders and employees but also to the wider family, as well as an added pressure to maintain or exceed expectations set by earlier generations.  

Where family dynamics allow, involving the next generation who are not directly involved with the family business is key to formulating a solid succession strategy and will allow all family members to set out their expectations. Where possible, open communication between all family members can play a key role not only in setting out the business’ future direction but also to avoid misunderstandings. A well planned succession strategy can create a platform for the next generation’s ambitions – whether those aspirations relate to the family business, or not.

It is also vital to involve professional input early on when considering any succession planning and Shepherd and Wedderburn’s private wealth and tax team, along with colleagues in other relevant practice groups such as our corporate team  , are proud advisors to a wide variety of Scottish family businesses.

Family businesses are undoubtedly feeling the sustained impact of the pandemic but are now looking to the future (which may not even remotely  resemble the future they had anticipated even three years ago) and especially, to the next generation, to grow and adapt the business and cement their place in the  market.

For more information, contact Susie Tweedie, Senior Associate in our private wealth and tax  team, at [email protected] or on 0141 566 7245.

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