Steering Succession - The Planned and Unplanned Exit

Family-run businesses blend the strength of familial bonds with the dynamism of entrepreneurship, and with over 5 million firms operating in the UK, they are an integral part of the economy. However, the unique nature of these enterprises calls for specialised legal considerations to ensure their longevity and success.

In our latest blog series, members of our Family Business Unit explore navigating the changes and challenges inevitably faced by family firms, and how best to turn them into opportunities.

Steering Succession – The Planned and Unplanned Exit

Succession planning is a critical aspect of business ownership, especially in Scotland where the landscape of entrepreneurship is thriving. Whether it’s a planned exit or an unforeseen circumstance, having a comprehensive strategy in place can ensure a smooth transition for both the business and its stakeholders.  We will delve into the nuances of succession planning for business owners in Scotland, examining both planned and unplanned exits.

Planned Exit Strategies

A planned exit allows business owners the luxury of time to carefully orchestrate their departure from the company. One of the most common strategies for a planned exit is grooming a successor from within the organisation. This involves identifying and developing talented individuals who have the potential to assume leadership roles in the future. By investing in their training and professional development, business owners can ensure a seamless transition when the time comes for them to step down.

For business owners who wish to keep the company within the family, a succession plan that involves training a family member to take over the reins is often pursued. This approach requires careful consideration of the individual’s qualifications, skills, and readiness to assume leadership responsibilities. It may also involve addressing potential conflicts or concerns among family members to ensure a smooth transition of power and encompass a succession plan.

Some points to consider for the planned exit;

1. Gifting
2. The family charter
3. Family Investment Partnerships
4. Family Investment Companies
5. Gift to a trust
6. IHT (lifetime gifting)
7. CGT

Always have your business documentation to hand. What does this say about the ability to transfer an interest in the business? There may be less of an issue in lifetime transfers as the documentation can be changed assuming all parties agree.

Unplanned Exit Strategies

An unplanned exit, whether due to illness, death, or other unforeseen circumstances, can be disruptive and chaotic if not properly prepared for. One of the most effective strategies for mitigating the impact of an unplanned exit is having a comprehensive contingency plan in place. This plan should outline clear procedures for addressing key issues such as leadership succession, ownership transfer, and business continuity.

In the event of an unplanned exit, having a designated successor or management team in place can help maintain stability and continuity within the organisation. This individual or team should be familiar with the business operations and capable of stepping into leadership roles at short notice. Regular training and cross-training of key personnel can help ensure that there is always someone available to assume control in the event of an emergency.

Some points to consider for the unplanned exit;

• Life insurance policies
• Properly drafted Will to avoid intestacy
• IHT (on death) iv. CGT (on death)
• Power of Attorney vi. Legal Rights
• When to start the planning process
• Pension death benefits

These are a few estate planning measures to protect the interests of stakeholders in the event of their untimely demise and can help facilitate the orderly transfer of ownership and ensure that the business remains viable in the absence of its founder or primary operator.

In summary

Succession planning is a critical aspect of business ownership in Scotland, whether it involves a planned exit or an unplanned departure. By carefully considering the various strategies and contingencies outlined above, business owners can ensure that their companies are well-prepared to weather transitions in leadership and ownership. Ultimately, a proactive approach to succession planning can help secure the long-term viability and success of the business for generations to come.

We look forward to welcoming you to future events as we continue to build a community of like-minded individuals passionate about family-run businesses.

Our next FBU event will take place in Edinburgh on the 23rd May 2024.

If you would like to attend please let us know by registering your interest here.