Chris Murray: Succession Issues In The Family Business

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rsz_chris_murrayBy Chris Murray

QUITE often, in family businesses, the importance of careful planning for the passing of the control and ownership of a family business does not get the attention that it merits.

In terms of planning, succession is not regarded as a business issue – indeed succession can often be regarded as a non-business issue to be addressed by the owner entrepreneur at some point in the future “when the time is right”.

In the current economic environment when most forms of property are at their lowest valuation in decades the time may just be right for optimum succession planning.

Owner entrepreneurs should appreciate that a proper succession plan, addressing legal and tax estate issues, can save them and their dependents money as well as ensuring a smooth and planned transition of their business to the next generation.

Indeed, a properly delivered plan can ensure the preservation of family relationships after the owner entrepreneur has exited from the business, rather than the confusion and debate that might otherwise prevail.

Taking on appropriate professional advice for each step of the process is crucial. 

Planning for succession can be summarised as follows:

1.  Plan to exit in the most financially beneficial and tax efficient manner both for the owner entrepreneur and the business.

2.  Ensure that the business handover has been carefully planned.

3.  Make sure that all legal aspects of the succession have been addressed.

Exiting the Business
: When passing on a business to the next generation the tax implications especially when it comes to Capital Acquisitions Tax and Capital Gains Tax require careful consideration.  Both CAT and CGT can arise on the same transaction.

However advantageous tax reliefs are available in the form of CGT retirement relief and CAT business relief that can minimise both taxes.
Maximising pension opportunities in the years leading to exit or retirement are a further consideration in planning to exit the family business.

Planning ahead, sometimes many years ahead, is essential to ensure the best financial exit both for the owner entrepreneur and the family members taking on the business.

Planning the business handover

Choosing your successor is a long and intensive process and one that should be approached in a structured and impartial manner.  Options include choosing from existing employees or family members or recruiting from outside.

With either option it is advisable to ensure objectivity by involving a third party advisor or trusted business colleague in the selection process.  Once a successor has been identified a timetable for the transfer of the reins and the retirement of the owner entrepreneur should be agreed.

• Chris Murray is Practice Manager at Casey & Co Accountants & Auditors. Casey & Co. strive to add real value to your business by providing specialist services in the areas of business start up, restructuring, bank negotiations and succession planning.

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