Family businesses form the backbone of Britain’s economic and social landscape. Often modest in appearance, they represent a powerful force—woven from generations of hard work, trust, and a deep connection to both place and purpose. From village butchers to centuries-old textile firms, family-run enterprises combine history with resilience, offering a model of sustainability and identity in a fast-changing world. Across the United Kingdom, family businesses account for around two-thirds of all private sector companies and contribute over £600 billion annually to the economy. Yet their true value cannot be measured purely in financial terms. These enterprises embody continuity, community, and culture—traits that are increasingly rare in an era dominated by faceless corporations and rapid turnover. A Heritage of Resilience Family businesses often begin with modest roots—an immigrant’s market stall, a farmer’s dairy, a corner shop that opened during the post-war years—and are passed down with an unspoken understanding of responsibility. This deep sense of heritage helps explain their remarkable endurance. In many cases, they serve not just as a source of income, but as a living archive of values, practices, and local pride. As the business evolves, so too must its model. While traditional skills are often passed from one generation to the next, modern family enterprises are increasingly embracing innovation. Many blend time-honoured methods with contemporary approaches: adopting e-commerce platforms, expanding globally, or redefining product lines to meet modern consumer expectations. The Succession Dilemma Despite their strengths, family businesses face one consistent and complex challenge—succession. Research indicates that a significant proportion do not survive the transition from one generation to the next. This is not due to lack of passion or purpose, but often the result of unclear succession planning, generational disagreements, or differing visions for the future. Navigating the handover of leadership requires not only legal and financial planning, but emotional intelligence. Successful transitions typically involve mentoring the next generation, establishing governance structures, and balancing tradition with innovation. When managed effectively, succession can strengthen both family bonds and the long-term prospects of the business. A Changing Landscape of Leadership The profile of family business leadership is also changing. Women are playing an increasingly prominent role, stepping into leadership positions across industries once considered traditional or male-dominated. This shift is transforming how legacy is defined—focusing more on inclusivity, sustainability, and community impact. Family businesses are also at the forefront of responsible entrepreneurship. Many prioritise long-term relationships with employees, customers, and suppliers, valuing stewardship over short-term gain. This outlook tends to foster loyalty and trust, further anchoring these enterprises in the hearts of the communities they serve. A Legacy Worth Preserving At the heart of every family business lies a powerful narrative—a story of origin, effort, and aspiration. These stories matter. In a market increasingly saturated with mass production and impersonal service, the authenticity of family-run enterprises stands out. Whether it’s a baker who kneads dough using a century-old recipe or a vintner who harvests grapes from family-owned vines, their work speaks of care and continuity. Family businesses are not just commercial ventures. They are cultural institutions, keepers of tradition, and bridges between past and future. Their legacy is not merely in profit margins, but in the values they uphold and the communities they shape. Ultimately, the family business is more than a model—it is a mindset. One that cherishes longevity over speed, identity over scale, and people over process. As Britain continues to evolve, these enterprises remain quietly but profoundly essential.

The media coverage of “The Great Resignation” has raised the profile of the ongoing and critical role of the board in succession planning. Good boards and smart directors plan the succession of the CEO to ensure a smooth transition in the leadership of the organisation, with minimal disruption and business continuity. Succession planning takes time and effort, and while the best made plans can sometimes fail, it’s always better to have one than to be caught in a position without a plan, or a clear leader. Family firms have the advantage in that they can take the long-term perspective and are not obliged to respond to the volatile sentiment swings that sometimes characterise the public listed markets. At least once per year the board should think about succession for the CEO. However, it’s not something family firms should look at shortly before a CEO comes towards the intended end of their term or reaches retirement age. What happens if they have to leave a board unexpectedly at short notice? It could take many months, even more than a year to source a suitable replacement, particularly if looking for someone external to the business, which could have a significant impact on the effectiveness of the organisation and board. Having a succession plan is even more important where the departing CEO may have had unique skills or experience, such as in mergers and acquisitions, which is vital to the organisation’s growth and future success. Once boards start to create or revisit the CEO succession plan, which they should do at least annually, they need to consider four key factors: 1) Clarity On The Role Of The Business Family firms need clarity on the future role and direction of their business. Is it about making as much money as possible, evolving into a social enterprise, providing jobs for family members, or something else? Only then can the appropriate succession plan be formulated, along with a clear brief and job specification for the CEO. On the theme of clarity, being transparent with candidates about what the role entails at the recruitment stage is crucial. Starting at the job specification and interview stage, through to the CEO’s appointment and beyond, role clarity is at the heart of a successful succession process and an effective board. If there is any ambiguity the CEO is set for failure. 2) Consider What’s Needed To Bring The Strategy To Life Forward thinking boards recognise the importance of diversity on the board to help bring the strategy to life. This is vital for family-owned businesses which may have a board loaded with family members who have the same way of thinking and outlook. A CEO with a different demographic background, experience, skills, thinking styles and circles of influence is often just what is needed to breathe life into the strategy and help take the family business to the next level. For example, if there is a lack of digital skills at a senior level it’s important to have someone on the board who has skills in this area, with digital disruption being a key driver of business success. If the board is adamant they want the next generation of the family to take over as CEO, then prepare them properly. An important part of this may involve encouraging them to leave the firm for a number of years so they can experience different businesses, new ways of working and learn new skills. Leading on from this, when recruiting a CEO family firms should bear in mind the importance of a good mix of thinking styles on the board, particularly across the four lines of sight – oversight, hindsight, insight and foresight. This is crucial to deliver an effective board and ensure it provides maximum value, and why it’s important that owners seriously consider appointing a CEO from outside their family. 3) Set Clear Performance Indicators For The CEO The new CEO will need to know how they will be expected to steward the creation of value, and therefore what they will be evaluated on. Clear performance indicators must be confirmed prior to an appointment being made. Then regular reviews of the CEO are vital to assess their effectiveness, identify opportunities to develop and ensure they are “fit for the future.” After the challenging last 18 months it’s more important than ever that these reviews should take place, at least annually. If a review highlights issues with the CEO (even if it is one of the owners) it may prompt the board to consider if a new one is needed. This makes it even more critical that a watertight succession plan is in place. It’s also worth bearing in mind that planning for the exit of the CEO and onboarding of the new one is part and parcel of the succession process. 4) Onboarding The onboarding, or induction stage, is the final step in the succession process. With many boards operating in crisis mode and virtually due to the pandemic, it’s vital that the new CEO is able make a meaningful contribution to board deliberations from the start of their tenure. This can only be achieved via a formally structured “journey of learning” induction plan over 18-24 months. This includes a programme of visits and experiences, a buddy system and governance training. By taking these four steps boards will be in a good position to deliver a smooth and effective CEO succession process and help engender an effective board. About the Author - John Harte is the Managing Partner at Integrity Governance where he leads a global team that is focused on making boards more effective. A boardroom expert working with multinationals and SME’s, he provides practical, impartial advice to directors, business owners and CEO’s to help improve performance. He is a regular speaker and thought leader on board effectiveness, practical governance and business disruption. John grew up in a family business and his extended family run fifth generation businesses and he has also served as a board member, chairman and adviser to many family firms. He also worked within Mars, a globally recognised family business for the best part of a decade.

The pandemic has prompted many family businesses to re-evaluate their future, review their operations and brought family governance and succession planning to the fore. The focus here is on family businesses, but much of what is written is equally true for families with significant wealth. The question in either case is where do we start when we, their advisors, are tasked with guiding them through the uncertainties of family governance and succession planning. We spoke to Frederick Bjørn, a Partner at law firm Payne Hicks Beach to get his thoughts. He advises a broad range of UK and international clients on personal tax and trust issues, but with his practice increasingly focused on advising entrepreneurial, business families on long term structuring and succession planning (often through the use of trusts). Despite the importance of tax in the overall thinking, the ‘tax tail should not wag the dog.’ The first question should be – what do you want to achieve? The answer is rarely straight forward and will depend on myriad factors including the stage of the family’s business, the ages of the key people in the business and the relationships within the family. It is only by exploring these factors that succession planning can begin. Often leaders of family businesses have not actually considered what their purpose is. They may have concerns about planning for the future, stemming from the perceived de-motivation of the next generation or their reservations about that generation’s capabilities. It’s vital to address these matters at an early stage. From the off, it is important to differentiate between three aspects of the family business: the control element, the economic element and the family (personal) element. Looking at control of the business, it is not unusual for a family business owner to relinquish (some) control in favour of the next generation, but only once they consider the next generation to be ready. This seems logical, until one realises that in their eyes, the next generation will never be ready (they will, after all, always be their children). The key at this point is to consider how the next generation(s) can be involved without usurping the patriarch/matriarch. This is delicate and is where structures can come in useful, particularly trusts and companies. The advantage of trust structure is that the control and economics can be kept apart and this can often protect the underlying assets (most notably the family’s business interests). The disadvantage is that not every client is comfortable with the idea of passing assets into a structure with so much flexibility and so little certainty. If this is the case, the next consideration is whether the existing company (or a form of holding company) could be used to try and break up the control and the beneficial interest. Sometimes the use of family investment companies and alphabet shares are useful at this stage. In either case tax will be a consideration and may limit the business’s options, but until the business owner knows what is on the table, he/she will not be best placed to dismiss them. Regardless of which route is adopted, once a child can demonstrate that they are capable both financially and in terms of running a business, this is when the older generation may be willing to concede a level of control. There is obviously a Catch 22 here, in that the older generation will not be prepared to do so until they are comfortable that the next generation are capable, but the next generation will not have the opportunity to demonstrate their capabilities until they have been given the responsibility. It is often this dynamic that needs to be played out. At some stage there has to be dialogue and an element of trust between the generations. Involving the next generation in discussions early in the process can help in this regard. It is not unusual for the next generation to feel the responsibility of wealth and the pressures that come with it very strongly, and for this to manifest itself in an apparent apathy or unwillingness to immerse themselves. The sums involved can be daunting and the success of the previous generation can demotivate. They feel like they will never quite be good enough. This can be rectified if they are brought into the fold and made to feel like they can achieve something within the business or with the wealth that has been provided for them. It is easy to assume that this should be done by way of sheltering the wealth so that they do not have access to it. However, in some cases this can in fact be demotivating in itself. It sends the message that their parents/grandparents do not trust them. Often this is why it is beneficial to have a third party involved who can see things objectively without the parental prejudice that can be so evident. It may be clichéd to say that it is a journey, but this does capture the essence of what we are dealing with. It is generally not a journey with an end, but it does twist and turn and produce some unexpected adventures along the way.

Stepping into leadership of a family business is not always easy, especially when you are following a successful founder. For Roberto, the second-generation leader of a successful Brazilian family business, it took years to win the hearts and minds of employees, customers, bankers, vendors, partners, and — most important — the other family owners. But when the business hit a rough patch, Roberto’s mother, who had co-founded the business, decided to step back in and take over the reins. Almost immediately, two factions emerged in the family: one that supported Roberto, and one that supported his mother. Conflict ensued, and decision-making ground to a halt. The business — and the family — never recovered. In a time of crisis, clarity of leadership is more important than ever. But balancing years of experience against the need for a new leader to prove himself and learn first-hand — all the while not risking the health of the business, the support of employees, and key business relationships—is not easy. How do you know when a founder or former leader should step back in to help? How do you know what level of engagement is right for them? And how do you navigate the transition — and any crisis that follows — to balance the founder’s experience and wisdom with the successor’s need for autonomy? BanyanGlobal’s Omar Romman and Devin Bird addressed that question in a recent article in Harvard Business Review. Romman and Bird shared several important steps you can take before and during a crisis to help strike a balance between these competing objectives. To help the retiring leader feel confident that he or she is handing the business over to a family member who is ready for the challenge, Romman and Bird suggest trying the following: Get An External Assessment Of The New Leader’s Ability To Run The Business. It can be difficult for leaders to objectively assess whether their successors are prepared. That’s especially true when a parent is handing the business over to the next generation. It is critical that owners maintain a view of how well the new leader is performing. Seeking a third party to assess the rising generation’s performance is key to the success of any transition. Once in the seat, the new leader stands to benefit from this assessment to support his or her development. Had Mark and Peter launched such a review, perhaps led by the board, Mark would most likely have learned that Peter had a strong handle on the business and was well-suited to tackling the crisis. And Peter would have learned about his own blind spots, better preparing him for the crisis. Having a qualified third party oversee a new CEO’s performance can depersonalize the process and provide mentorship and support along the way. Strengthen The Lines Of Communication Between The Former And The Current Leader. During any leadership transition, especially one involving family members, communication is critical. Mark and Peter could have increased, not decreased, the frequency and depth of their communication during and after the transition, enabling Mark to keep tabs on key developments and to relay his thoughts directly to Peter. That would have kept Mark off the front lines, cutting down on confusion in the organization and among its investors during the crisis. For Peter, the increased communication would have given him the benefit of Mark’s experience running the business in past crises. He could have found in Mark a partner to talk ideas through and express concerns. They could have gotten on the same page, reassuring Mark, and giving Peter confidence in his decisions. Respect the lines of authority. During a crisis, decision-making can become confused — just when it needs to be at its best. After the transition, Mark and Peter settled into a new way of making decisions that was working well — until Mark started to step back in. He used his history with the company and his position as an owner to become involved in major decisions, creating confusion and slowing down decision-making. During a time of crisis, it is critical that the current and the former leaders align on their decision rights and roles. Sometimes a crisis brings the need to modify how decisions are made. Perhaps the owners need to be more involved in some decisions, or frontline workers need to be more empowered. Such changes should be discussed, agreed on, and revisited on occasion to maintain organizational clarity and efficiency. Peter would have been more likely to seek Mark’s advice if he knew that Mark would not go around him if they disagreed. Mark would have been more likely to stay within the lines of authority if he knew where and how he should be involved and had a forum for exercising his decision rights. Acknowledge Differences In How You See The World. In any leadership transition, it is natural for the new leader to bring new points of view and ways of doing business to the position. He or she may have different risk tolerances, business interests, or ways of dealing with employees that the organization needs to adjust to. The outgoing leader might find it hard to see such sudden changes in the way business is done. He or she might accept them when the business is performing well but use them to justify re-entering the business when a crisis hits. In a time of crisis, it is critical to slow down; jointly redefine goals, strategy, and plans; and communicate about how the new goals are being used to guide decision-making. The revised plan provides objective, newly relevant criteria against which to evaluate the new leader’s performance. The outgoing leader should step back in only if the successor and his or her team are falling short of the updated plan; otherwise, the long-term transition will probably be best served if the outgoing leader respects the lines of authority established in the transition. About the Authors - Omar Romman is a partner at BanyanGlobal Family Business Advisors. He advises the owners of family businesses and family offices from around the world on owner strategy, governance, and generational transition. Devin Bird is a former partner at BanyanGlobal Family Business Advisors.

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.

Multi-generational businesses are extremely common in the UK and Essex is no exception. In fact, according to a report prepared by Oxford Economics less than five years ago, 85% of family firms in the UK plan to remain family-owned ‘for the foreseeable future’. However, simply intending to remain family-owned does not always lead to easy decision making regarding how best to pass down the business. In this piece, James Boustead from Rickard Luckin explores the issues around handing down the family firm. That issue will turn on a number of factors, including the tax implications, but importantly whether: The older generation are ready to pass control of the business, both day-to-day and strategically, down to the next generation The older generation want to receive full or partial payment for the value of their equity in the business The older generation have sufficient capital and/or income sources available to them for their retirement All of the older generation’s children are working in the business or if there are children outside the business that they are keen to ensure also share in a fair proportion of their estate There is no natural heir to owning the business but where it has historically passed down the family and culturally being bought by a larger business may not be suitable for it. Depending on the answers to those key questions, and the particular weighting that a business owner gives to them at that point in time, a transaction with the purpose of succession can potentially take place. There are a number of options that could be considered. Although less common than simply gifting the business, management buyout (MBO) or share buyback, growth and freezer shares are becoming more popular in family business scenarios. The broad premise is that the older generation protect their existing equity in the form of freezer shares entitled to a preferred amount of value on an exit event, and in some cases a preferred dividend coupon on that value and possibly voting control being retained as well. The future growth then belongs to the next generation. Growth share planning might be appropriate when there is a desire not to pass down too much equity too early, but perhaps the older generation do not need or want any equity from the business as yet. Alternatively they may want to retain voting control and stay actively involved in the business, or perhaps the business cannot easily raise a large capital payment for their equity, and instead the solution is to give the older generation a right to an income on those shares. For those considering inheritance tax (IHT) implications, it is worth noting that the freezer shares can potentially qualify for 100% relief from IHT, whereas cash or an IOU would not. Employee Ownership Trusts (EOTs) may also be a less common but suitable option for family business owners to consider. EOTs have gained a lot of popularity in recent years and where a natural family successor doesn’t exist and the cultural change of a sale to a larger third party may not be suitable, EOTs may present a tax-efficient, viable option. Whatever the future holds, it is important to start the conversation early and to plan for the future in good time to ensure that plans and wishes can be implemented accordingly.

Succession is often not dealt with until it needs to be implemented. Succession planning is an area that many family businesses struggle to deal with, and often leave until it needs to be implemented rather than plan for the transition properly. Plan succession properly and the business can survive for generations to come. Fail to plan can be disastrous so how can families ensure that they survive and avoid the potential pitfalls? The Aims Of Succession The key objectives of succession are typically to protect family harmony, family wealth and the family business but it is during this period of generational transition that the business is at its most vulnerable. It is also a period when emotions run high too. The transition of the family business raises complex and emotion-laden problems and with so many public tales of acrimony and legal wrangling related to succession planning, it is little wonder that many family business owners fail to plan. However, ironically, it is often this failure to plan that causes the disharmony that they try so hard to avoid in the first place. Planning Ahead Is Crucial By planning ahead, effective succession strategies can be formulated and implemented in an open and positive environment. There is every reason for optimism. Whilst no two family businesses will ever be the same, there are three core elements common to them all: the family, the business and the owners. A change in the make up, structure or dynamics in any one of these will inevitably impact the other two. Good succession planning means being aware of the interaction of these three areas and adopting an approach that takes them all into account when planning the transition. Two Key Areas There are two important facets to any succession planning process: ownership succession and management succession. This distinction is important because of the important differences between ownership of the shares in the business and the day-to-day management roles that enable the business to continue to function on a daily basis. Both are important but they are different roles and should be treated differently. All too often the succession planning process fails to distinguish between the two and the optimal plan for the future is not identified which can cause problems later on. It may be, for example, that the best solution is for ownership of the business to remain within the family but the management is left in the hands of outside professionals who are engaged to perform roles within the business that the family cannot do to the same level due to lack of experience and expertise. Whatever the outcome, it is important that the business decisions are taken for business reasons, not family ones, as often happens. Things To Think About… It is crucial to decide what the vision is for the business and to be sensitive to the needs and expectations of the generations involved in the process. Clear communication is also key. When undertaking the succession planning process there are some key things to consider: Ownership Succession Is there an ownership succession plan in place and is it fully understood and accepted by everyone? Do the next generation want to own shares in the business? Are the next generation properly prepared and ready to take on the responsibilities of becoming shareholders? If shares are only going to be given to those working in the business, how can you be fair to those who do not? Management Succession Is there sufficient experience within the family to take over the running of the business? Must there always be a family leader and/or a family member on the Board? Is the next generation prepared to take over the business, and if not, what can be done to address this? What can be done to ensure that siblings/cousins will work well together when the older generation are no longer around? How do you balance the needs and requirements of working family members versus non-working? If external management is required, what can you do to recruit, retain and motivate the individuals concerned? The Key To Success… Managing the succession process in a family business tends to be most successful when it results from a well-planned partnership with the next generation. This partnership hinges upon effective communication and a clearly aligned vision between the current and future generations. Succession planning and management need not become the horror story associated with family skeletons and feuds. If planned properly, it can be a period of fulfilment for both the family and the business, and set the foundations for future growth too. All too often we read about family businesses in crisis, those in conflict, or those that did not survive the transition. Little recognition is given to those who do survive through the way that they adapt and change through the years, those that positively plan and embrace the change from one generation to the next, and those where there are good governance procedures in place to help subsequent generations deal with the transition Above all, succession planning is a journey. It certainly does not happen overnight. The journey enables families to work together and determine the best way forward and when done properly is a real force to be reckoned with, putting them on the right road to achieving their goals, both for the family and the business.

One of the common questions asked of an adviser by any family business owners is how to attribute a value to the family business and how coming up with an agreed formula can help remove challenging discussions at a later date. With a successful family business there is the challenge that all your wealth can be tied up in the business? How do you attribute a value to the family firm? What is it worth? Howard Hackney explores the key areas to think about below. Valuations of any business are subjective and very much a matter of opinion and family firms are no exception. Above all, the family firm is only worth what a buyer is prepared to pay for it, and indeed the value that the seller is prepared to let it go for. Any valuation needs to reflect the sustainability of the financial performance of the business and reflect the trust and value perceived to be in the business too. In that respect, like their non-family counterparts, family firms that are looking to sell need to make sure they professionalise the business operations and structures in order to make the business as attractive as possible to potential purchasers. As Howard explains, “It is often said that company valuation is ‘an art and not a science’ and this is very true. At the end of the day a company is worth what a buyer will pay for it – wide variations both above and below a technical valuation are not unusual. In turn there will be different valuations for different purposes and it is to be expected that two independent valuers acting on either side of a transaction will come up with significantly different values. In this respect the old joke of asking an accountant ‘what two plus two make – the answer being what do you want it to make?’ is never more true.” There are however a number of tried and tested methodologies and those that are often most useful for family businesses are the net assets as adjusted for open market values basis or the earnings basis. The net assets basis simply uses the net assets of the business as shown by the financial statements. Complications can arise when there are non-business assets in the accounts such as investment properties but even here the basic principle holds true – the value of the company is the sum of the value of its assets less its liabilities. This of course does not take into account the value of ‘goodwill’ and this is where the earnings basis comes in. The earnings basis looks at the maintainable future profits and then multiplies those profits by an appropriate multiplier. In arriving at these figures there is huge scope for subjective assessment of the ‘numbers’ to use. Where the earnings basis is less than net assets then it would be usual (but not an absolute given especially where the company is loss making) to use the net assets as the value. Where the earnings value is higher than assets the difference is by definition goodwill and the earning basis is likely to be the more appropriate. However, as Howard adds, “the simple formulaic approach is easy to say but often difficult to implement because there are going to be areas that are subjective, and therefore lead to different valuations, something that then needs to be discussed and figures agree with potential acquirers. This obviously becomes more complicated if the buyer is the next generation and there are relationship issues that need to be taken into account. The older generation may need to extract wealth from the family firm and to be seen to be fair to the next generation and the next generation may have to borrow funds to finance the acquisition and will not want to borrow more than necessary either.” The six areas of most contention in deriving the earnings value include: 1 - Maintainable Profits Best practice tends to see a weighted average over a number of years being used but in a family firm where relationships may have been built up over many years by the outgoing family business leader, there could be a challenge as to how these business levels will be maintained. 2 - Normalised Profits When assessing the profitability of a family firm it is important to compare the business practices as far as possible to open-market levels, especially when it comes to rewarding and remunerating staff. In many instances family firms pay family members more than the market rate for a role based on their financial needs and this will need to be ‘normalised’ when pulling together a family business valuation. 3 - Recent Trading History Another area for debate will be the trends in profits and trading in recent years and the level of weighting that should be used. Integrated forecasts and the previous accuracy of management accounting forecasts will likely be the subject of some debate in this area. 4 - Exceptional Items The results used in determining the valuation will need to take into account exceptional costs incurred by the business and adjust for these. Examples would include redundancy and reorganisation costs. 5 - Tax Rates Multipliers quoted in the open market are calculated on post tax profits. While multipliers themselves can be adjusted to take account of the tax affect it is more usual to arrive at a post tax normalised profit and there is then the question of which rate of tax to use. It is usually the corporation tax rate but this does vary depending on the size of the company and government policy. 6 - Multipliers If the above factors have a fairly high degree of subjectivity, it is the multiplier that is subject to the most argument. What figure to use is influenced by many factors including the business sector and the size of the company and indeed the economic climate. There are a number of possible indices ranging from quoted FTSE indices to others such as the BDO Private Company Price Index. While these are often in the low teens, a more usual multiplier for a typical family owned business would perhaps be between 3 and 8 although in the current climate this may be seen as optimistic. Determining the valuation of any business is a difficult and often contentious issue and family firms need to make sure that they are best placed to gain the best value for what in many cases is their most valuable asset. As Howard continues, “family firms that know that a transition between the generations or a sale is on the cards need to plan for the future and make sure they adopt best practice in all areas of the business to help them. Everything needs to be put under the spotlight and be addressed in order to mitigate discussions and debate further down the line. A good place to start is to ensure that detailed management accounts and integrated cashflow forecasts are prepared and maintained, areas such as depreciation are reviewed to ensure the company follows normal best practice and that areas such as salaries, reward and other benefits for family members are also considered against open market practices.” “On a final note, family business owners always want to know what the business is worth but are very often not interested in actually selling to an outsider." "Selling to a family member can be fraught with challenges when trying to maintain relationships and reach an outcome that is deemed fair and equitable to all parties." "In my experience, including an agreed valuation methodology that is not subjective in any shareholders agreement or family constitution is a good way to transition the business from one generation to the next without any major issues arising.”

Sometimes, the informality of working in some family business can be a great blessing… or a dreadful curse. Here, Rochelle Clarke of Succession Strength looks at some of the ways that can enhance and maintain good family business relationships. For some successors and other family members, the relaxed atmosphere of working with family provides welcome space to be themselves. For others, it frustratingly turns work/life balance into a hopeless illusion. Sooner or later, most family members find themselves in the second camp. When work starts to encroach on everyday life—from Sunday dinners to family picnics— family members can feel as though their lives have been taken captive by the family business. In helping overwhelmed family members who work together, we’ve seen what happens when successors fail to acknowledge the creeping pressure and combat it with healthy boundaries. The best way to build those boundaries is to talk about them early and often along the family business journey for the long term success of the business. An ounce of proactive boundary-setting early in the process is worth a pound of awkward conversation and explosive conflict later on. In these conversations, there are three critical questions that need to be addressed: How can a family member let the others know he or she is feeling overwhelmed? How can a family member address intrusive behaviour from other family members? How can the family work together to collectively balance their home/work lives? Boundaries are as individual as our finger prints. What may be OK for me, may not be OK for you. There is no way that someone else could correctly guess where your boundaries lie unless you tell them. At times, we may not even know where our own boundaries lie until we experience that feeling of discomfort. The only way that someone else will know for sure that a boundary has been crossed, is when you voice it. At the end of the day, achieving perfect work/life balance can be tough for everyone—successors and employees alike. The best way to protect all employees, whether they are family members or not, is to use healthy communication to get out in front of it as soon as possible. Just imagine working in a business where employees have the freedom to be at their best in an environment that brings out the best. Where they have the mental separation from the business when they need it; where intrusive behaviour from other family members or employees is addressed. How can family members in your business develop healthy boundaries?

Succession is a term used by many people for many different things. Here we look at what succession is all about, some of the challenges and some of the myths too! Can you really create a list of dos and do nots for successful succession planning? And precisely what IS succession planning? So many people have a perception of what that means to them and even then only 4% of respondents in our 2015 research actually had fully communicated and documented plans for the future. To be controversial we try to avoid the term and focus on designing and building robust future proofing strategies – for the family, individual and business. But here’s a few of the ‘myths’ we come up against in working with family and owner managed enterprises when exploring the “succession dilemma” Succession Is Tomorrow’s Problem. Putting the subject on the back burner believing we don’t need to worry about it because there are years to plan is dangerous. You risk the unexpected catching you out – in extreme cases the key family and business person being taken seriously ill or passing away. The majority of family enterprises are owner managed and extremely hands on dealing with the day to day challenges of the business. It is vital to always be considering the “what if…” question and scenarios. All business leaders, even as a 30 something founder of a new business, have a responsibility to think about this from day one. It’s vital to take time to work on the business as well as in it. Succession Is About Appointing The Next Leader. Succession is not about passing the business to one person but considering holistic future planning and protection. It’s vital to consider ownership, business, individual, family and wealth needs and wants. The best succession strategies look at skills, market conditions, opportunities, investment, R & D, evolving society, technology etc as well as the family role and the wishes of those impacted by the business. We would rather have people focus on future proofing and transitioning Succession = One In And One Out We would also ban the term retirement, it no longer means “pipe, slippers and death”. Transitioning is about having a developing strategy to carefully evolve the roles played for new and existing people at all levels of the organisation. Successful processes ensure that there is room for the incumbent generation as well as the future generation – both are as vital. Designing the strategy allows everyone to influence and understand their next phase and it should be gradual and done with support for all and open communication. Succession Is A Big Deal With A Plan No. Succession is a living breathing process of transferring knowledge, experience, values and much more – not just to a newer generation but also up to the incumbent generation. We should never stop learning and it’s not about creating a one off plan. It’s a process with supporting strategy which should be reviewed and developed on a continual basis. From founding generation to multiple generation, each should be adding value as they pass it on and this should be part of the discussion. Succession Is Something I’ll Decide On And Let Others Know When I’m Ready It’s rare that one person deciding on a how the future will be, especially when they won’t be part of it, works well. It is very much an inclusive process that should involve all those that influence and are influenced by the business and future decisions. It’s vital to have buy-in from everyone or at least involve them in the process as this is a huge opportunity to consider ideas you’d not thought of and also to share the burden and responsibility. This approach allows relationships to be strengthened rather than undermined and opportunities to be seized. Succession Is A Family Only Matter No. Traditionally family enterprises would keep plans to themselves. Employees aren’t daft, they know that the MD or CEO is 80 and nothing has been done to ensure longevity and the future – and so guess what… they’re looking for new jobs. The best businesses with successful transitioning strategies involve their often loyal employees and certainly keep them informed to reassure them. Succession Is Something We Will Sort Ourselves We work with many families and businesses who have been trying to work on a strategy themselves for up to 10 years without success and spiralled into toxic situations as a result. Some do involve their professional advisers but are trying to fix issues that they don’t really understand and don’t really want to face. When you’re within the process it’s very difficult to overcome the dynamics and emotions and see the complete picture. Even those that believe that they have created a great strategy usually head in the wrong direction because the process was flawed. Using specialised neutral support can save time, money, frustrations and relationships as well as giving piece of mind. Family enterprises very often internalise and are the wrong people to “solve the succession dilemma” themselves. To ensure a successful process, plan and outcome using neutral support is usually the very best way. Succession Strategies Are Good Enough We always recommend that any future planning and strategic development is supported by suitable protection such as a family charter or constitution and Shareholders Agreement. Creating the rules to play by is simple when everyone is sharing the vision and onboard. When things go awry or take you unawares, that’s when documents and protection can be so useful. Believe me, we see so many examples of this happening even for the closest most loving families. Succession Is Just For Family Businesses There are many things that family enterprises can teach us and the importance of future proofing your organisation and building a robust transitioning strategy is one. We see professional firms, public companies, schools, public sector organisations and more all struggling with precisely this. What ever you think ‘succession’ looks like, have you really considered the future for you, your family and your organisation?

The employee owned sector is changing. Over the last few years, we have seen growth in employee ownership as a succession plan for many UK family businesses. This is largely because evidence shows us that by bestowing ownership on employees and giving them an opportunity to decide on the future of a business, there is a direct positive impact for all stakeholders. There are not only benefits for individuals and their families, but also for the business, which can usually be seen through an increase in productivity, growth in profitability, greater resilience and more inclusive and effective employee engagement. Employee ownership can come in many different guises, ranging from simple option arrangements, tax-advantaged share purchase arrangements, creating specific shares (often referred to as ‘flowering’ or ‘growth’ shares), or by a simple transfer of ordinary share capital. It is possible to combine many of these elements together to create bespoke incentivisation arrangements that work for you and your business. However, if your plans are bigger than just incentivisation and you would like to realise some or all of the value you have created, you might consider your employees as the purchasers of your business. Natalie Wright, Head of Family Business at Mazars explains more. Selling to your employees, if structured correctly, can qualify for a complete relief from capital gains tax. Tax should not be the sole reason for entering into transactions but if you think your employees are the best future owners for your business then you should consider this relief more closely. To get the relief, the sale is made to an employee ownership trust (EOT) where the beneficiaries of that trust are the employees. The exiting shareholders and trustees agree a value for the company and the shareholders sell their shares to the trustees. The key conditions for the relief to apply is that the company is a trading company and the trustees must acquire at least 51% of the company shares. The consideration for the sale is usually left outstanding on a loan account until the EOT has sufficient funds to make the payment – although sometimes third-party financing is obtained. The trading company can make gifts to the EOT when it has cash available. Such gifts should not be taxable in the hands of the EOT, although it’s strongly recommended you obtain HMRC clearance that this treatment will apply. These funds are then used by the EOT to make payment to the seller. The clear tax benefit of using an EOT is that the exiting shareholders can sell their shareholding to the trust completely tax-free. Given the recent reduction of the entrepreneurs’ relief lifetime limit to £1 million, this tax exemption is now even more valuable. Moreover, there is no limit on the value of the company that can be sold to an EOT. A company owned by an EOT can pay income tax-free bonuses of up to £3,600 to each employee each year. EOT’s are particularly useful for family owned businesses where there may not be a family member in the next generation who wants, or is able, to take on the running of the business. They are also used in situations where the current business owners do not want to sell to a competitor. Employee ownership should not be a place of last resort for succession planning but a model for sustainable, scaleable, successful business where employees are the custodians, drivers and beneficiaries of a financially sound and strong business. There are many benefits to an EOT, but there can be some downsides and it’s important to understand how this could affect you, your business and your planning. The trust must control the company, in other words it must have more than 50% of the votes and must have more than 50% economic entitlement over the company. The price achieved on a sale to the trust may be slightly lower than the price you could achieve on a sale to a third party, although this may well be outweighed by the tax benefit, so your net proceeds may be similar. The sales proceeds may not be received for a number of years and the seller has no security over the deferred consideration. It will depend on the cash available in the company to make the gifts to the trust, or the trustees being able to raise external finance, but this itself would probably also rely on the company results. You cannot control the company – but you can have influence, especially if you have retained some shares. You would normally look to appoint professional trustees to help in this area. The sale to an EOT is not the same as a sale to management. A sale to the management (usually referred to as a Management Buy Out) is generally a sale to a specific group of managers, backed by a funder who provides them with the means to buy your shares. An EOT must be for the benefit of all eligible employees rather than just a few, and all employees must be eligible to participate in the bonus scheme, although different bonus amounts can be paid to employees based on remuneration or length of service. If any of the conditions cease to be met, there will be a disqualifying event. If this happens within a year of the end of tax year in which you sell, then your tax saving will be clawed back from you by HMRC. After that, it becomes a problem for the trustees who will be deemed to dispose of and reacquire the shares at their market value, probably resulting in a CGT liability. EOTs present a viable option for many family businesses, as it provides a business model that can adapt to the changing needs and demands of running a business in the 21st century.

How to keep the business – and the family – running smoothly into the next generation and beyond as the building blocks of a national economy. Family-run businesses represent the future building blocks of China’s economy. According to research, over the next few years China can expect to see six million family businesses contribute to its economic growth. Since private enterprise is relatively new in China, many family businesses are still controlled by their original founders who may soon pass their firms on to the next generation. Successful handovers are therefore of huge importance to Chinese family-run firms, and by extension, to the continued growth of the Chinese economy. A badly handled succession can put a family firm in danger, wipe out an entire family’s savings and destroy family harmony. Owners of Chinese family business are often forward-looking in business but very traditional when it comes to family governance. They tend to see their role as one of leading by example – doers not talkers. They are reticent when it comes to sharing their plans for the future with family members. Indeed, long-term planning is almost a taboo subject for them. The Yung Kee Case The owner-manager of the famous Yung Kee Restaurant in Hong Kong is a prime example of a dynamic businessman whose neglect of long-term succession planning proved to be a fatal error. Almost from the moment Kam Shui Fai, owner of the Yung Kee Restaurant, sold his first roast goose in Central Hong Kong in the 1960s, customers began flocking to the eatery. Its reputation, relying purely on word of mouth, soon spread beyond the port city. In 1968, Fortune magazine named Yung Kee one of the world’s greatest restaurants – the only restaurant serving Chinese cuisine that appeared on the list. As he got older and his sons joined the business, Kam Shui Fai never took the time to develop a formal succession plan. Simply keeping up with the ever-growing popularity of the restaurant was a major feat. His first-born son, Kinsen Kam Kwan-sing, started working in the kitchen in his teens, gradually taking over the running of the restaurant. His involvement in the business relieved the pressure on his father, who could count on Kinsen to manage the entire operation, from goose farming to keeping customers happy, and with the same attention to detail as the owner. Kam’s second son preferred to stay out of the kitchen. Instead, Ronald Kam Kwan-lai spent part of his youth earning an engineering degree from a university in Taiwan. Eventually he joined his father’s business as the manager of the family’s growing portfolio of property investments. The two brothers never had any need or desire to interact in the day-to-day management of the business since they relied on their father to act as an arbiter for any decisions. The family members met regularly at board meetings to discuss how to invest the fast-growing profits of the business. So when Kam Shui Fai died in 2004, his widow expected her sons to continue as they had in the past. But she was mistaken. Without their father as a buffer, the two brothers began to disagree on just about everything, inside and outside the kitchen, sowing discord within the family and among employees. While the mother sided with her oldest son, her daughter and third son (who died in 2007) sided with Ronald. Because he was the majority shareholder, Ronald was able to force his older brother out of the restaurant as well as off the board of the family-run holding company. With his minority shareholding, Kinsen could do little to prevent his ousting from the family business. Worse, Ronald refused to buy out his brother’s share for an acceptable price. Believing that he had the law on his side, Kinsen launched a lawsuit to force Ronald to liquidate the parent company of Yung Kee. Thus began a long, drawn-out court case that brought unwanted media attention to the family and the Yung Kee Restaurant. The restaurant’s reviews were no longer raves; Yung Kee lost its precious Michelin star in the meltdown. Worse still, Kinsen died in unexplained circumstances a few years into the legal drama, leaving his two sons to fend for themselves. As for the lawsuit, Hong Kong’s top court gave the go-ahead for the parent company to be wound up, and the proceeds divided between the two branches of the family. Meanwhile, Kinsen’s sons have opened up restaurants of their own in Hong Kong, taking some of the best Yung Kee chefs with them. Hardy Kam Shun-yuen, the younger son, won a Michelin star for Kam’s Roast Goose four months after its opening in July 2014. “It is a new beginning here,” he said, “I focus on continuing my Dad’s spirit.” Four Simple Rules To Activate Family Succession 1. Founders should understand that each high-potential family member is a unique human being with strengths and weaknesses. If they have more than one child, they should avoid treating all children as if they were all alike. 2. Founders should develop long-term succession plans, no matter how small the business. They should stop, look and listen to their heirs, note their strengths and weaknesses both as individuals and as a team players, and then drive the succession process based on their observations. 3. Founders should embed an entrepreneurial attitude within the family and the business by creating formal planning structures and written rules about succession. If some aspects of the business require different skills and competences, job profiles should be drawn up and matched with the appropriate CVs of family members. Such expectations drive young family members to acquire the right skills for a job and provide for a transparent transfer of management and ownership. 4. Finally, founders should create an organisational culture that reflects the firm’s family assets, heritage and identity. By establishing a family-based culture, founders can ensure that their businesses can survive long after they retire. It is essential stepping stone for future generations. It is unlikely that any of these four simple rules were applied during the decades that Kam Shui Fai was roasting goose in his kitchen, with dramatic consequences for the family and ultimately the Yung Kee Restaurant. By following a proactive, structured approach to long-term succession planning, founders can ensure that their families and businesses will survive for generations to come. Morten Bennedsen is the André and Rosalie Hoffmann Chaired Professor of Family Enterprise at INSEAD and Academic Director of the Wendel International Centre for Family Enterprise. He is a contributing faculty member to the INSEAD Corporate Governance Centre and is co-author of the book The Family Business Map: Assets and Roadblocks in Long-Term Planning (Palgrave Macmillan 2014). This piece was first published on the INSEAD website and has been reproduced here with their permission.