Family businesses

Where in the life cycle of business development, family ownership and succession planning is your family business?  

Virtually all businesses come from modest beginnings. At the entrepreneurial stage running the business is often achieved around the kitchen table by the founder and his or her spouse. As the business grows the first advisory group often consists of long-time friends whose loyalty, support and advice can be counted on. Later, a founder may appoint employee directors and also add independent advisers with specialised experience. The timing of this shift depends on growth in size and complexity of the business, the ownership structure and progression from founder to second generation and beyond. One of the board’s critical roles, for example, is to manage risk. Outside stakeholders – bankers, investors and strategic partners – view a family business with a qualified independent board as a more desirable corporate partner. Thus, as a family firm grows, skilled outside advisers or directors become ever more important for creating more effective business relationships.

When a family company has reached the mature stage of development, its board is likely to have a significant proportion of non-family members who have been appointed based on the skills and experience needed to help the business achieve its strategic aspirations.

As the board oversees the business, the family members who share ownership should communicate to the board a strategic direction for the company, as well as determining an acceptable level of risk and setting financial goals for revenue, profits and dividends. In addition, the owners should set out clear policies for company ownership and clarify the terms for ownership succession through shareholder agreements. Other provisions may include share option schemes for non-family executives, creating voting and non-voting classes of shares and having an agreed dividend policy.

While ownership succession policies may be relatively simple to establish in the early generations they can become far more difficult later on. As family owned businesses pass down through second to third generation and beyond, the share ownership can become spread between an ever increasing number of individuals who are remote from the founding family. Retaining ownership in a smaller group of people by way of share buy-back payments may affect the capital structure of the company and create havoc with financing the company’s long-term strategy.

Speak to us about how addressing the issues of ownership and management through the generations will ensure that your family company will survive for many years to come. Contact Tony Whiteway on 01524 54 1200 or twhiteway@clbcoopers.co.uk