For many people working in the family business the thought of stepping back and no longer being actively involved on a daily basis is usually met with a varying degree of trepidation, whilst others plan to lead a life away from the business in retirement by undertaking a range of other activities.
Family Business United undertook research to canvass the views of senior members of family firms across the UK and see how the ground lies and to see how they view life after the family business.
The results are in and make for an interesting read.
Stepping Away
When it comes to actually stepping away from the family business, 34% think that it will be easy compared to 57% who do not, and a further 9% who don’t know. Clearly, working in a business that has an emotional connection, and in some cases a long history where the business has passed down the generations, makes the decision to step down a challenge for many, despite the obvious need to do so at some point.
Transition from one generation to the next is cited as one of the most difficult areas for many involved in family businesses to address but open and honest conversations, as early as practically possible, can help to pave the way for a smoother transition. Planning helps everyone concerned and with communication there can be benefits not just to the individuals concerned but also the business. However, only 22% of respondents have a fixed date in mind to step back from the business, with 52% not having a fixed date and a further 26% not working to a fixed date as “they don’t think that they will ever step away fully from a role in the business.”
Again, opportunities for the next generation can be diminished if the older generation have no plans, or fixed dates in which a transition of leadership and/or ownership may occur which can have implications for the family and their relationships, not to mention the career aspirations and opportunities for the next generation as well as the impact on the business too.
Moving Into Retirement
It is pleasing to see that nearly 80% of respondents have given consideration to what they plan to do once they have retired from the business, although that still leaves 20% that have not.
However, there may well still be a degree of ambiguity a over 65% are seeking an ambassadorial role within the business after they have stepped down, with a further 30% willing to take on such a role if one was available. Stepping back from the day-to-day operations is not easy and an ambassadorial role may well be a good opportunity to enable the older generation to continue to add value to the business, maintaining relationships and transitioning them to the next generation too.
Family businesses that have been successful in creating ambassadorial roles do so with clear role definition and responsibilities to ensure the potential for misunderstanding are minimised.
Filling Time In Retirement
We have had many conversations with people approaching retirement who have voiced concern as to what they are going to do with their time, what will give them purpose once they are no longer in the office on a daily basis, and how they are going to fill their diary. For many, retirement offers up plenty of opportunity to focus on hobbies and pastimes which along with foreign travel tops the list of things likely to feature in the retirement plans of our respondents.
Top 10 Likely Retirement Planning Activities:
Hobbies and Pastimes (78%)
Foreign Travel (77%)
Rest and Relaxation (57%)
More time with the Family (56%)
Volunteering/Charity Work (52%)
Non-Executive Director Roles (44%)
Working Part Time (30%)
Sports and Adrenaline Activities (30%)
Exploring the UK (30%)
Gardening/Running An Allotment (29%)
Funding Life After The Family Firm
Obviously, individuals have different objectives and financial circumstances but giving up a role in the family business and possibly relinquishing shares and their associated dividend income brings into question ‘how to pay for life after the family business’ and it is interesting that there is an array of thoughts in this area.
Pension income is by far the most likely way that people plan to support their chosen lifestyle once retired from the family business but this is by no means the only source of funding for retirement, with some looking to find new employment to keep them active and income generating too.
Key Plans To Fund A Retirement Lifestyle:
Pension Income (78%)
Income from the Family Business (57%)
Savings (43%)
Capital (39%)
Proceeds from the Sale of the Family Business (22%)
Other Income (21%)
Don’t Know (13%)
Income from New Employment (5%)
As Paul Andrews, Founder and CEO of Family Business United comments, “The results of this survey have been extremely interesting. Over the past few years, the financial world has become an ever more complex place, so navigating what your future – especially life after work – will look like can be both insightful and thought-provoking.”
“As business owners, it is natural that you are consumed by managing your business, and the survey results indicate that more than three quarters of respondents are relying on a pension to provide their retirement income. We are still faced with complex pension rules, ever changing tax structures and information that is either not understood or indeed considered. Therefore, we would recommend you spend your valuable time to make sure your pension is on track," he continues.
“It was somewhat of a surprise to learn that over half of respondents confirmed they do not have a fixed date to step back from the family business, which would indicate that there is some work to be done. Leaving it until you are looking to retire before you seek advice could mean opportunities may have been lost. Professional guidance can make all the difference and, as with so many savings plans, it is usually best to get clarity of your thoughts and action them as early as possible," he adds.
Clearly, family business leaders have had a lot to deal with over the past couple of years and for some the challenges continue. Business is, and has been a priority for everyone, and the past few years have not been easy. However, time moves on and it is important that the findings of surveys such as these help to encourage thoughts about the future, to enable plans to be drawn up and actioned and to allow the next generation to take on more responsibility, build their presence and are allowed to grow into senior positions at the same time as the older generation and potentially looking to step back from their roles in the business too.
Planning can never start early enough as the world of family business is complex, dynamics can be complicated and decisions will have to be taken at some stage. Plans provide a framework to work towards and although the dates may change, plans do afford the opportunity to make strategic decisions that may be in the best interest of the family and the business at an earlier stage, enable greater overall understanding by family and non-family members alike as to the future plans for the business and a plan can help remove any ambiguity too.
Communication is key but with succession planning and retirement plans of individuals so inextricably linked, early conversations and planning are recommended to prepare for as few challenges as possible down the line.