Vital to ensure succession in the family firm

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WHATEVER problems large companies may be suffering, Britain's family businesses are apparently alive and kicking. Research suggests that they account for three-quarters of British companies and employ nearly half the workforce. Like their counterparts in the United States, they also tend to outperform competitors quoted on the stock market, writes Roger Trapp.

But the bonds of kith and kin that are thought to aid this performance can also be the greatest weakness of the family business, according to David Harvey, technical officer at the Chartered Association of Certified Accountants.

'It is, by definition, impossible to achieve a total separation of business and family values. When a family member contemplates retirement, family and business priorities can clash unless succession and retirement issues are planned carefully in advance,' he says in an article in the current issue of the association's magazine, Certified Accountant.

With family members often reluctant to even contemplate their death or retirement, businesses are frequently left to members of the next generation who have hitherto had little to do with them. And far from being the end of the succession problem, such a situation is generally the beginning - perhaps even the beginning of the end.

In line with the old saying 'From clogs to clogs in three generations', US research suggests that only a third of companies remain viable when transferred to the next generation, while only 15 per cent pass on to the third.

To counter this, it is essential that the family, plus any other advisers, especially the accountant, prepare a plan for the succession. Mr Harvey says this needs to address five key issues:

What are the criteria for selecting the next chief and other senior family appointees?

How will business continuity be maintained?

When will the change-overs occur?

What happens if wrong choices have been made?

How are the retiring family member's aspirations on retirement to be met?

How the business handles these matters may depend on answers to other questions. In particular, it is important to decide long-term goals and basic philosophy - such as whether the company is mainly a family business or do commercial interests come first?

Once these issues have been resolved, the adviser needs to know the company's history, its current state of operations and business plans.