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Families in Business Series: When is the right time to transition to a family business?

Posted on 16 February 2024

A business might be established as a family business at the outset, for example when funded with family money or where family members are setting out specifically with the intention of being a family business. 

However, in the majority of cases, at least initially in the lifecycle of a business, the sole concern of the founders, as with any entrepreneur, will be to ensure that their business survives its early days and the turbulence that usually accompanies its initial periods of growth.  It is not until they have developed the vision with the controllability and predictability of implementation, that owners will have the freedom to breathe. It is likely to be at this stage in the lifecycle of the business that they have the capacity to turn their minds to the longer-term future and will be able to begin to balance the interests of the family with those of the business itself.

In doing so, they are likely to consider:

  • Family involvement in the business
  • Management – how to incentivise (both family & non-family)?
  • Safeguarding value for future generations

Family member involvement does not always create a family business. What will, is the balancing of the interests of the business with those of the family.

In considering transitioning to a family business, there will be some founders and businesses that find it is not feasible or appropriate for them. For example, one client, which already employed various family members, found that the decision as to whether to transition had to be settled urgently given decisions as to the future long-term direction of the business also needed to be addressed.

Having established and grown a successful hospitality business it had become apparent that there was a real potential to grow exponentially but for this to happen it would involve hard work and passion, as well as substantial investment of family monies, over the next five to ten years. The founder had every confidence in their children being able to navigate any issues and to take over the management, having proven themselves to be adept and well suited to management.

Nevertheless, when they discussed the future together it quickly became apparent that this business, though the founder's lifelong passion, was not theirs. As such, they took the decision to bring in an external partner to fund and take over the management of the business with the sale proceeds and future income being used to fund the childrens' new businesses where they could follow their own passions.

If a decision is taken to transition to a family business then a new phase begins, starting with understanding the roles, rights and responsibilities of the participants.

How we can help

Our Family Businesses team have extensive experience advising family businesses at all points in their lifecycle, including through the process of transition to the next generation.

We can assist with reviewing existing governance arrangements and ensuring that that are fit for purpose, providing stewardship and governance training to existing and incoming family management, and acting on your behalf as an intermediary in the context of discussions regarding the future of your business.

We are also well experienced in advising on corporate and business restructurings, including with respect to the tax.

Contact us

We hope this article and our series of families in business articles provide you with valuable insights on how you can successfully manage your growing family business. If you have any questions or need further assistance, please contact us.

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