Family businesses are integral to the UK economy. Indeed, a report by Family Business found that there are over 5 million family-run firms in the UK, accounting for 93% of all private sector companies.
So, with such a significant presence and role to play in the success of the country, it’s important that such businesses have a clear plan for the future. Without a well-structured succession plan, even the best-run family businesses can struggle when the time comes to pass the reins to the next generation.
Emotional considerations, family dynamics, financial obligations, and legal hurdles can all create challenges that, if unaddressed, may put the business and your future at risk.
So, read on to discover six ways a financial planner can help you build a strong succession plan for your family business.
1. Modelling exit strategies
There are several different ways you can pass on your family business, each with its own benefits and considerations. A financial planner can use cashflow modelling to explore how various exit strategies could affect your long-term goals and the stability of the business.
For instance, if you keep a partial stake in the business, they can project how dividends or income might support your retirement goals. Alternatively, if you’re considering a full exit and plan to start a new venture, they can show you how the resources you have could be deployed to fund it.
By looking ahead and projecting the outcomes of your decisions, you can go forward with confidence and make informed choices that benefit both your finances and the future of the business.
2. Retirement planning
If you choose to pass your business down to the next generation rather than sell it, you likely won’t receive a lump sum from the sale, so you’ll need to ensure you have other reliable income sources.
You may continue to draw income from the business, even if you’re no longer in charge, but that means your financial stability will remain tied to its performance, so it’s important that the business is structured to support this.
A financial planner can help you design a retirement income strategy using a mix of assets – such as pensions, investments, property, or business dividends – so you can enjoy your ideal lifestyle while giving the next generation the freedom to run the company without too much pressure.
3. Tax planning
Depending on how your succession plan is structured, there may be tax implications to consider. For instance, if you pass away within two years of transferring the business, it may no longer qualify for Business Relief (BR) and could become liable for Inheritance Tax (IHT).
A financial planner can help you structure the transition to minimise these liabilities and plan ahead for how any potential tax bills will be met. They can also work with the new leader to help ensure the business and its transfer remain tax efficient.
Additionally, a financial planner can advise on the optimal timing of the handover, the pros and cons of gifting versus selling, and other strategies to protect family wealth while ensuring full compliance with HMRC rules.
4. Registering Lasting Powers of Attorney
Once the business has been successfully transferred, the new owner should consider putting a Lasting Power of Attorney (LPA) in place. This ensures that, if they were to lose mental capacity, someone they trust can make important financial and business decisions on their behalf, which can help minimise disruption and protect the future of the company.
A financial planner can help facilitate this process by working alongside a solicitor to ensure the LPA is properly registered.
They can also support both the outgoing and incoming owners in clarifying their respective goals and responsibilities, so that if the LPA is ever activated, decisions are made in line with the overall business strategy and the long-term financial objectives of the family.
This not only protects the individual but adds an extra layer of security for the business during times of uncertainty.
5. Updating wills and other key documents
It’s also important to update key legal documents once the business is transferred to reflect the new set-up.
A financial planner can work alongside a solicitor to ensure that the family wills, shareholder agreements, and trust arrangements are all aligned with their current wishes and succession plan.
This helps prevent disputes, avoids ambiguity, and ensures the family’s intentions are legally protected.
6. Helping to resolve and avoid disputes
Emotions can run high when family and business are intertwined, especially when it comes to succession planning.
A financial planner can act as a neutral party, helping to mediate between generations and ensure everyone understands the financial implications of different options.
By facilitating open conversations early, they can help avoid future disputes and keep relationships and the business intact.
Get in touch
If you run a family business, a financial planner can help you create a succession plan that makes sure you, the business, and the next generation are all supported. By aligning personal and business goals, they help ensure a smooth transition that protects long-term financial stability for everyone involved.
Email us at hello@vwmwealth.com or call us on 0141 229 4004.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate estate planning, cashflow planning, tax planning, trusts, Lasting Powers of Attorney, or will writing.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
