Succession Planning for
Family Businesses
F
amily businesses are unique, at the core lies an important dynamic connecting the family and the business through the family’s ownership, which offers both opportunities and challenges.
ANTHONY PACE Anthony Pace is an accountant by profession and a tax partner at KPMG in Malta working extensively in the area of family businesses and transaction services.
When one takes a look at the most successful family businesses, one will note certain common characteristics. Dedication to community, an entrepreneurial ethos, and a concentration on deep-rooted and lasting strategic thinking and legacy. All of these qualities are essential for a business to thrive, but the key to sustaining the business in the future and ascertain its growth, lies in smart succession planning. This imperative ‘middle’, bridges the gap between two visions – the entrepreneurial creativity that establishes the business and the long-term ambition to ensure the growth and continuity of the business. Although businesses might be faring well enough in the present-day, what about a decade or two from now? Generally, most family business owners find themselves so involved in the daily running and operations that they do not contemplate on what is required to make sure that the business continues to, not only function in an effective manner, but also grow substantially once they step down as leaders. A smart succession plan therefore envisions the future of the business, anticipates the struggles that the business may be faced with, and prepares for it. This includes making preparations for disturbances within the business, such as the exigencies of new leadership and the transfer duty implications arising upon succession.
The role of the Advisor A smart succession plan covers the succession of both the ownership and the management of the business – two equally important yet distinct functions. Yet, the
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transition of any business, including these functions, can generate a mix of emotions. Letting go is not an effortless exercise and taking over the reins can also have its challenges. Having the right advice during such a pivotal business and life decision can make all the difference. This is where the advisor’s role becomes crucial since they can help their clients consider all the elements that go into passing the business on to the next generation including in relation to the following:
Communication and implementation The transition of a family business from one generation to the next is an intricate and, more often than not, a sensitive exercise, especially since succession planning closely relates to the owner of the business eventually retiring. Most business owners are hesitant to address the subject as they feel that they still have a lot to contribute to the business and that they are the ones which truly understand its needs. It is thus important for the advisors to sit down with the family members and listen to their needs, expectations, worries and fears – both collectively and independently. Indeed, involving family members in the succession plan can help ensure that all persons involved are informed and feel comfortable making decisions about their individual and collective futures in the ownership and management of the business. Communication and implementation of the succession plan can ensure that all the risks are mitigated and each person is duly informed on the process, timelines and goals.
