Passing on Business

Grooming your successor doesn't happen overnight, it is a continuing process...

...which should start at least 10 - 15 years before you plan to pass on the business.

To quote management guru Peter Druker: "The final test of greatness in a chief executive officer is how well he chooses a successor, and whether he can step aside and let his successor run the company."

Not only will this enable you sufficient time to groom your successor but it will also help to ensure that matters are handled in a tax efficient way both for you and the recipient.

Put your plan in writing, setting out a timetable for the transition and the succession process. This will help to ensure that difficult issues are confronted head on and that everyone in the business knows where they stand.

Qualifying criteria for the successor will need to be considered carefully - remember the skills and attributes required by the successor generation may be very different from the incumbent -- the entrepreneurial flair, single mindedness and risk taking attitude of the founder of a business will not always be the most appropriate qualities for the new managing director of an existing business.

As a general rule you should choose a single overall successor. This can often be difficult in family businesses where the owner has to choose between two or more qualified siblings. However, putting different family members in charge of different parts of the business through fear of alienating family members can often result in an uncoordinated mess.

At Grant Thornton we have considerable experience of helping business owners to plan their succession. Where there is a likelihood of conflict between family members we can help identify problems, often before they erupt, and introduce measures to ensure that issues are resolved as quickly and painlessly as possible.

We can also work with you and your successor to ensure the smooth transition of the business.

In certain circumstances, of course, succession may not be a viable option. In which case you may choose to:

• sell the business - either via a trade sale or management buy-out
• merge the business - either formally or by way of strategic alliance or partnership
• float the business publicly
• appoint an outsider to manage the business
• wind up the business.

The choice will depend on numerous considerations, including the perception of the external risks facing the business, the continuance of family involvement and the desire for financial liquidity and security.