The lessons Business Owners can learn from succession

The Lessons Business Owners Can Learn from Succession: 

Don’t be Logan Roy

Succession is a Golden Globe winning TV Show on HBO (Prime Video for UK viewers) which is well worth a watch, it is filled with all your favorite HBO drama elements – betrayal, deceit and a dysfunctional family. It centers around a media empire, Waystar RoyCo, whose future is thrown into chaos due to the failing health of the patriarch of the family Logan Roy. Granted I would hope in practice I wouldn’t see an 80 year old CEO make last minute announcement that he has no intention of retiring, fire a long term COO in favour of an estranged nephew and change his entire succession plan in favour of his new wife in the space of one meeting – seriously that’s just the first episode. However Succession does demonstrate the issue, albeit in a rather extreme manner, that if you do not have a plan in place for the future of your business if you were to die or lose capacity is can cause huge problems.  

It is not very pleasant to think about what would happen to your business if you lost capacity or died whilst you are still of working age. Regardless of how unpleasant it is, the reality of the situation is that not planning for the future can have a disastrous effect on your business. In 2020 research was undertaken on the effect of a lack of succession plan by an owner in a small business. This research concluded that if a business does not have a succession plan it is 20% more likely to fail and has on average a 60% drop in revenue.

This research makes it clear that it is vital for a business to have a succession plan in place but it is difficult for business owners to know where to start.

The first step is to look at the makeup of your assets and who your potential beneficiaries may be. I have often found that clients want to ensure their children inherit equally but not all of their children are involved in their business. Clients often need to undertake the difficult process of assessing whether they have enough personal assets to equal the value of the share in the business. I have seen particularly complex situations when the business involved is agricultural and involves a significant amount of farmland with development value. Trying to get the right balance of business and personal assets and who is inheriting them often requires the assistance of solicitors, accountants and financial advisors.

If there isn’t an obvious choice of a child who is involved in the day to day running of the business who do clients turn to? I have had many clients suggesting their spouse may be a sensible choice, even in cases where their spouse is not involved in the business. This can however lead clients into tax trouble as it can potentially remove the availability of business property relief which can be a vital relief for inheritance tax for business owners.

A client may also want to keep their business with the person who they built it with even if they are not related. This may be the most sensible commercial decision as it prevents any kneecapping of the business by getting outsiders (or estranged nephews) involved. If this is the case a provision may need to be made in the business documents that if an owner dies or loses capacity their family should be paid out the value of the business which is being retained by a business partner.

It may be that you need a joint approach so that your personal documents reflect your business documents. It is sensible when looking at future planning and making amendments to your Will to make future plans for your business to ensure that your business documents are up to date. It can cause confusion and a significant increase in legal fees in the administration of your Estate if for example your shareholders agreement states that your shares in a business pass to a business partner but your Will states they should be passed to your spouse.

Essentially there are a lot of options when it comes to planning for the succession of your business, whether you are wanting to keep it within your family or leave it to those who will run it more successfully. The key thing to note is here is that in order to prevent a loss of revenue and potentially even a business going bust these conversations need to happen and happen as early as possible.

At Aquabridge we endeavour to provide you with legal advice but also take into account the commercial ramifications of all decisions that are made for a business either now or in the future. 

If you would like to discuss succession planning for your business please contact Emily Robertson at erobertson@aquabridgelaw.co.uk or Lorna Bastian at lbastian@aquabridgelaw.co.uk