Succession planning moves up the business agenda

For many, succession planning has long sat on the list of important jobs to tackle "one day", but the findings from the 840 respondents in Armstrong Watson's latest Family, Privately Owned and Owner-Managed Business Survey suggest that day is arriving for a growing number of business owners.

As economic uncertainty, tax changes and demographic realities converge, more businesses are being forced to think carefully about what comes next.

Why succession planning matters now

Our survey found that more than half (52%) of survey respondents are aged 55 or over, and 44% expect to leave their business within the next five years. A further 27% anticipate their exit within five to ten years.

Against that backdrop, it is encouraging that succession planning is receiving greater attention, with half of respondents stating they have already included exit or succession plans within their business plan. However, the other half have not, highlighting that many businesses are still without a clear roadmap for the future.

Impact of tax and policy changes

One of the most notable findings from this year's survey is the impact that changes to Business Property Relief (BPR) and Agricultural Property Relief (APR) are having on decision-making. The reforms limit the scope of 100% Inheritance Tax relief on qualifying business and agricultural assets to £2.5m per individual, prompting many owners to reassess how wealth and ownership will be passed to future generations.

More than two in five respondents have already reviewed their succession plans as a result of the changes, including 23% who have taken action and 18% who are yet to act on their plans. A further 17% intend to review their position.

The influence of these changes extends beyond a simple review exercise. More than 40% of respondents say the reforms have influenced decision-making around succession, sale or ownership structures either significantly or to some extent.

This demonstrates how tax policy can quickly move succession planning from a long-term consideration to an immediate priority. While the succession of your business should never be driven solely by tax, changes to reliefs can materially affect the value transferred to the next generation and may prompt you to revisit arrangements that haven’t been reviewed for several years.

Keeping the business in the family

When asked how they intend to leave their business, 27% or our survey respondents plan to pass or sell the business to their children, while 7% expect ownership to transfer to other family members. Importantly, many of those businesses appear to be taking practical steps to prepare. Among those intending to transfer ownership to family members, almost three-quarters say the next generation is already involved in the business, and 79% have also discussed their intentions with them.

Planning for a successful transition

Open communication is often one of the most overlooked aspects of succession planning. If you’re considering passing your business to the next generation, the technical aspects of succession planning are only part of the picture. Successful transitions also depend on whether your successors are willing, capable and prepared to take on the responsibility.

Just as importantly, succession planning should not be viewed as a single conversation that takes place shortly before retirement. The most successful transitions are often those that have been years in the making, allowing time to develop leadership skills, transfer knowledge, test governance arrangements and gradually hand over responsibility. Whether your successor is a family member, management team or external buyer, early planning will create more options and reduce the risk of disruption when the time comes for you to step back.

This is particularly important in family businesses, where commercial objectives and family dynamics are often closely intertwined. Having clear discussions about roles, expectations and future ownership can help avoid misunderstandings and provide greater certainty for both the business and your family.

Alternative exit routes outside the family

Not every business, however, is destined to remain within the family. Management and employee buyouts continue to appeal, with 11% favouring this route, while 7% are considering a move to an Employee Ownership Trust. Others would prefer a sale to a third party, either to the highest bidder or to an acquirer who shares the values and culture of the business.

Perhaps most strikingly, 15% expect their business to cease altogether, while 14% admit they have not yet considered how they will exit.

Prepare for successful transition

Whether you plan to step away from your business in two years or ten, succession planning is most effective when it starts early.

Succession planning is a gradual process of preparing, preserving business value, protecting employees, safeguarding family wealth and creating options when opportunities or unexpected events arise.

With the Budget approaching, many business owners will understandably be watching for any further changes affecting Inheritance Tax reliefs as well as Capital Gains Tax. But waiting for policy certainty is rarely the best strategy. Planning for succession early on will put you and your business in a stronger position to adapt, whatever future policy decisions may bring.

For family-owned, privately owned and owner-managed businesses, succession should not be viewed as the final chapter of the business story. Done well, it is simply the start of the next one.