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Keeping your Business in the Family

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Published by: Joe Lenane | Published Date: 23rd October 2012

David Baldwin of Baldwins Accountants discusses the key elements required to run a successful family business.

David BaldwinThe strength of personal relationships is perhaps the biggest advantage family businesses have over other businesses. But whilst family members tend to share similar business objectives, the informal nature of these relationships can be problematic.

Strong corporate governance is the foundation of good businesses, but can be undermined by family members, who often ignore strict reporting structures. Family businesses can benefit from a more structured approach, with external advisers able to bring objectivity to meetings and address issues affecting performance.

Within family businesses, striking a balance between maintaining enough control and allowing the freedom for each individual to make any role their own is vital.

The new generation perhaps better understands younger consumers, but the older generation still know the value of old-fashioned customer service and its ability to turn browsers into buyers. This experience is crucial to the role of mentor that older family members must undertake, but external advisors can help with roles and responsibilities for staff, family or otherwise.

Passing a family business to the next generation requires planning and the simplest step is ensuring wills are made and re-visited regularly to take account of changes in the business and family situations.

Although understandable, passing shares to the next generation before the owner retires can pose a threat to family businesses, when divorce leaves share capital beyond the control of the family. To lessen the risk of fallout, business owners should seek external advice, which can help deflect criticism from family members for any decisions taken.

Business property relief is crucial when considering succession, reducing the value of business assets for the purposes of inheritance tax, but again, expert advice can ensure its potential is maximised, because pitfalls exist for the unwary.

Many family businesses combine childcare with work, exposing children to the working environment, even if it’s just sitting behind the counter. This can inspire the next generation or put them off completely and family business owners must be careful. A motivated individual, focused on joining the family business can make educational choices that deliver new skills to benefit the business.

Family joining the business should work their way up, even if that’s sorting the papers or working the tills. They shouldn’t walk straight into the boardroom if they are to earn the respect of colleagues.

For small businesses, owners can transfer shares over time, with a plan that sets out agreed trigger points for staged transfer, which can be very tax efficient, with hold-over relief helping to limit any Capital Gains Tax liability.

Any decision to transfer shares or responsibility to family should be based on business performance, which ensures those employees not able to own shares will still enjoy the benefits of a successful business, possibly through better remuneration packages.

Whilst newsagents face a set of unique challenges, particularly with margins under pressure from cover price rises for many regional titles, the reasons good businesses succeed is common to all, regardless of their structure or their sector.

The key to success is a good strategy, understood by all. And although new family members can strengthen the business, they must first understand how to run a business, before they worry about family politics.

Baldwins Accountants is recognised as a leading advisor to family businesses, scooping a top award at last year’s Family Business Awards. Partner David Baldwin is the third generation to be involved in the firm and feels he is perhaps in a better position than most to understand the unique pressures that affect family businesses.

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