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Why planning ahead is vital for family-owned businesses

Jan 03, 2019

Have you thought about when you might want to exit your family business? Most owners have at least some idea of when they intend to retire but many don’t have a formal exit plan. Indeed, even if they do have a plan, they don’t always share it with the people who will be affected by it. This can lead to conflict and tensions among family members and other stakeholders as the time for the business transfer approaches, says Michael Farrell.

The key to avoiding conflict is to develop a formal plan well in advance and agree the strategy with everyone who will be affected by it. Conflict can be avoided if family members and other stakeholders know that the plan is right for the business and is based on sound business reasons.

Not every exit plan involves passing the family business to the next generation. Sometimes there isn’t an obvious successor, so the exit strategy may be to sell the business or bring in a junior partner and develop them for a future role.

You need to think about the value of your business well before any planned transfer takes place. You also need to think about whether any structural changes may be needed before the business is handed over.

If you intend to sell the business, you will want to maximise its value well in advance of the sale so that you have several years of strong accounts to show a potential purchaser.

When developing your plan, it is important to discuss the tax implications with your accountant as different strategies can have very different tax consequences. A good plan will optimise your operations and maximise the future benefits for your family, your business and yourself.

Whatever your plan for the future, it’s essential to communicate it to everyone involved.

Finally, remember to review the plan regularly as your business evolves.

Michael Farrell is a Director at PKF FPM.