When you think about the future of your business, it’s easy to focus on growth – new clients, expanding premises, or even a rebrand, but have you considered what happens when you’re ready to step back?
Whether you are planning to pass the business on to family, transfer ownership to your management team or sell to an external buyer, having a clear succession plan in place is key to ensuring a smooth transition.
Delaying or ignoring succession planning can lead to serious disruptions, jeopardising the future of the business.
Many business owners delay succession planning, assuming they have plenty of time. In reality, they should prioritise it when they start the company.
Some owners fail to realise that without a clear plan for transitioning ownership, their business could face leadership struggles, financial complications, and uncertainty for employees, customers, and stakeholders when the time comes for them to exit the company.
Succession planning involves far more than simply choosing your replacement.
You will need to take the time to carefully select the right successor, prepare them properly, and structure the transition in a way that protects the business and your finances.
Is keeping your business in the family the right choice?
Passing the reins to the next generation can seem like the obvious choice for family-run businesses, but that does not necessarily make it the right one.
For anyone planning to pass the business down to a family member, perhaps your oldest child or younger sibling, it’s important to ensure they’re ready for the responsibility.
Sometimes, extra training or a phased transition is needed. In other cases, family members may not want to accept the position and would prefer to go into a different career, which is why it’s crucial to have open, honest discussions early on.
If you intend to have a family member as your successor, having plans in place well in advance of your exit can be a huge benefit.
If they are old enough, it could be worth bringing them on board now and having them shadow you to understand how the business runs and get to know the team they will be leading.
What can you do if there is no clear successor?
Not every business has a family member waiting in the wings, so alternative options need to be explored.
If there’s no obvious successor, a Management Buyout or an Employee Ownership Trust, where key team members take ownership, can be a great way to keep the business in experienced hands.
They will already know how the business runs, they will be familiar with the employees, stakeholders and clients, and you’ll likely have built a good rapport with them and trust they will continue to run the business as you would if you stayed.
An alternative option could also be to sell the company to an external buyer.
An external sale can bring in new investment and a fresh perspective, which can be great for the business. However, it often involves more due diligence compared to handing the business over to someone you already know and trust.
The buyer might have a different approach or vision for the business, which can be challenging, especially if you’ve got specific ideas about how you want the company to evolve. Their plans might not line up with yours, and it’s important to think about how that could affect the business in the long run.
Having clear conversations upfront about your goals and values can help make sure everyone is on the same page before moving forward.
The tax implications of succession
When planning your business succession, there are several tax factors to consider.
Tax planning is an often overlooked but crucial part of the succession process.
For example, Business Relief can help reduce Inheritance Tax on business assets, while Business Asset Disposal Relief (BADR) offers a lower rate of Capital Gains Tax (CGT) on qualifying disposals.
However, CGT rates were increased to 18 per cent and 24 per cent as of October 2024 and from 6 April 2025, the BADR rate will also increase from 10 per cent to 14 per cent, with a further rise to 18 per cent from April 2026.
While the £1 million lifetime limit remains unchanged, these increases to CGT and BADR on BADR assets could mean a significantly higher tax bill for those selling their businesses.
With these changes in mind, business owners contemplating a sale may want to accelerate their plans to benefit from the current lower rates.
To qualify for BADR on a disposal of company shares, sellers must meet specific conditions, including holding at least 5 per cent of shares and voting rights and having been an officer or employee of the company for at least two years before the sale.
We can advise you on the best course of action for the sale to ensure your succession strategy is as tax-efficient as possible.
It’s never too early to make succession plans
Whether retirement is on your mind or succession still feels a long way off, having a plan in place means you can step away on your own terms, knowing your business – and the people who rely on it – are in safe hands.
Your exit plan is not something you should leave until you’re ready to retire.
It’s an ongoing process, and starting early gives you time to explore all of your options and find the most suitable and tax-efficient option.
It also helps to ensure the ownership transition goes smoothly when the time comes.
We help business owners create succession plans that protect their legacy while making the process as tax-efficient as possible.
If you’d like to explore your succession options, contact us.