Why do so many successful business people fail at the essential task of planning to pass on their businesses?
The reasons may include fear of losing control of the business, unwillingness to invest in developing a succession and estate plan, or difficulty in choosing a successor, which can naturally be complicated, especially when family members are involved. As a result, many business owners adopt a wait-and-see attitude or simply tell themselves that everything will fall into place naturally.
But there are a lot of issues involved when considering succession, around both the strategies and the practicalities:
- Do we have an appropriate succession time frame?
- Are the next generation the right people to take over the business and how do I manage expectations of family members who may not wish to participate in the business?
- Do my successors have appropriate support and business networks to draw upon when they take the reins?
- What new ideas may the next generation want to bring to the business and should these be discussed sooner rather than later?
- Do we need non-family members in management positions due to lack of family interest and / or to ensure ‘right man for the job’?
- Who should own shares, how will they be acquired (method/funding) and what are the tax consequences?
- What role will current owners play during and after the management succession
We believe it is in the best interests of the family and the business to have a succession strategy. This does not need to be cast in stone, and we recommend that any succession plans are revisited periodically like any other strategies the business may have.
This isn’t just a question for retirement - what if for some reason you needed to name a successor tomorrow, would you know who this should be? In order to alleviate some of these anxieties and facilitate an effective succession of your business, our experience highlights some common themes to consider:
- There is no need to stall or delay your succession process because you have not formulated all the answers to the ownership issues. You are not alone. Most family business owners are not aware of all the options and strategies available to them in the succession process.
- Make an effort to understand the philosophy of the next generation of family members whose ideas and visions for the business may be different from yours.
- Consider how to fairly compensate each family member for their role in the business.
- Ensure that you have a plan to provide for family members who are not anticipated to be heirs/ managers of the business.
- Make tax considerations an integral component of your plan in order to maximise the value of the business or wealth transferred.
How we can help
Key to KPMG’s approach to succession planning is to invest time understanding the genealogy and individual roles within your business, in order to build the ‘Family Component’ into our advice. To achieve this, we work with a number of tools to give us a holistic view of all the components of the family, the business and other stakeholders.
Of course the most important asset we have is our own expertise, drawn from years of working alongside successful business owners. We are then able to have an informed discussion on the implications of any decisions you may take on succession, focusing our attention on your personal and business tax situations, remuneration strategies and scenario planning. Further, our award winning audit and assurance services are there to give you long-term comfort over the decisions that you make.
Next Generation Management
We also acknowledge the importance of recognising the development of the next generation at an early stage, should the plan be to bring them into the business as part of your succession strategy.
KPMG hosts an annual two-day Summer School for 21-30 year olds to equip them with some of the commercial and financial knowledge they will require when in the business. This is balanced with learning about the myths and psychology of working in a family business. To support ongoing development, we offer attendees of the School an opportunity to have a relationship with a KPMG mentor, to be at their disposal as and when the need arises. Alongside this we also act for single families in a training capacity as part of a next generation gathering spanning multiple branches of the family, where we discuss areas such as accounting, corporate finance, corporate social responsibility, and philanthropy.