Succession planning is among the biggest worries for owners of family businesses and has been a hot topic since the Autumn Budget 2024. George Square explains how taking advice early on can ease the stress and help family businesses to meet their current and long-term goals.
Succession planning may be one of the most challenging experiences facing any business leader, especially an entrepreneurial business owner who has built a family business from scratch. Getting it right is essential – for many family businesses, succession is a once in a lifetime transition.
Yet, research by STEP, the Society of Trust and Estate Practitioners, shows that 69% of family business owners do not have a formal succession plan that outlines what will happen to their business after their death.
There are more than 5.3 million family businesses in the UK and having a clear succession plan is crucial for ensuring a smooth handover and protecting the future of the business.
IHT and the importance of early succession planning
Inheritance tax is a key consideration for family business owners and, understandably, they want to ensure as much of their business wealth as possible is passed on to the next generation. In April this year reforms originally announced in the 2024 Autumn Budget will take effect that will see the allowance for qualifying agricultural or business assets increase from £1 million to £2.5 million. For spouses and civil partners, this allows up to £5m between them before needing to pay inheritance tax, on top of existing allowances such as the nil rate band.
The changes have highlighted the importance of robust succession planning at an early stage. This is the first step in maintaining the strength of an enterprise and the family’s prosperity. Discussing how a family business should continue beyond the career, or even the life, of the founder can be difficult, as it often crosses business and personal spheres. According to research, issues around succession planning make up four of the top ten worries keeping family business owners awake at night.
Top 10 family business worries
- Continuing to develop and remain a profitable business
- Management succession planning
- Red tape, regulations and legislation
- Planning for later life
- Engaging and developing the next generation
- Ownership succession and developing responsible future owners
- Identifying and maintaining family values
- Extracting value from the business
- Taxation
- Developing effective marketing, social media and PR strategies
(Source: Close Brothers Asset Management)
It is not uncommon for the entrepreneurial first generation of family businesses to overlook succession planning or leave it until the last minute, but this can make the process even harder.
Maintaining family values
Research into family businesses suggests that management and ownership succession planning are a worry to business owners; engaging and developing the next generation to remain a profitable business, whilst at the same time maintaining family values.
Personal finances are also a concern, with worries about planning for later life.
Many family business owners struggle with the idea of handing over control. For many entrepreneurs, their identity is closely linked to the business they have built. However, effective succession planning requires a willingness to step back and adopt a longer-term perspective.
Challenges for family-owned SMEs
Small, UK family businesses have an especially hard time navigating regulation and legislation, all of which are outside their immediate control. This includes recent changes such as the new measures introduced under the Employment Rights Act, which will be gradually phased in throughout 2026 and 2027. Adapting to changing policy whilst remaining loyal to their set of unique family values and running a profitable business are also challenges and could impact upon succession plans.
Looking to develop a sustainable organisation for years to come?
Handing a family business to the next generation is a major process and requires careful consideration. Not only must owners select and develop the successors, protect brand reputation and retain knowledge, and ensure family values are adhered to, they must also plan for their own retirement. The effort, however, is crucial to developing a sustainable organisation for years to come.
Take advice early and develop a personal financial plan to alleviate anxiety and meet long-term goals. owner
To speak to one of our independent financial advisers for further information, call 0115 947 5545 or get in touch here.