Succession - the Death Knoll for Small Businesses?

Article excerpt

The contribution made by small businesses to the UK economy is widely accepted. Employment in family businesses alone accounts for 50% of non-public sector employment and, of the UK's top 8,000 businesses, 76% are family owned.

Some of the UK's most innovative and enterprising companies are family businesses. Sainsbury, John Menzies, Littlewoods and Clarks are among the better known companies which began as family concerns, yet research shows that very few family companies actually survive to the second generation.

A recent survey conducted by Business Pages has shown that 42% of small businesses find that day-to-day survival takes precedence over planning for the future. 43% of those surveyed have made no plans for the succession of their business.

Whether a founder is unwilling to relinquish control or pass on the personal relationships that they have built during their time with the business, the fact remains that without a plan for succession the future of the business is threatened. In addition to the financial burdens of inheritance tax and capital gains tax, a decision by the majority shareholder to sell their shares following the death of the founder may bring an end to the company. The Business Pages survey found that small firms (particularly those with a turnover of less than [pounds]100,000) thought their business would have no future beyond their death/retirement.

SO WHAT CAN BE DONE TO PREPARE FOR SUCCESSION?

Since every company is different, there is no one solution, but there are some basic principles that all can follow. Most important is to allow plenty of time to plan. The sudden death of a proprietor or major shareholder will leave a company completely unprepared and could have serious consequences.

Succession is one of the major causes of tension in a family. A good way to help minimise possible conflicts is to involve as many family members as possible in the planning process. Non-family employees should also be involved where appropriate. A detailed plan for succession should be approved by all those concerned and checked by legal advisers. The process for choosing a successor should be clearly defined as should be the role of the successor. Retirement dates should be set and the management plan and business goals agreed and documented. …