Why succession planning remains a resilience challenge for family businesses

Family-owned businesses face a key challenge that receives far less attention than inflation, rising borrowing costs or labour shortages: succession planning.

While there are encouraging signs that more businesses are taking succession seriously, a lack of preparation can quickly become a governance and resilience issue rather than simply a long-term strategic consideration, particularly where a business is facing financial pressures or unexpected change.

Our 2026 Family, Privately Owned and Owner-Managed Business Survey found that almost one in five businesses (19%) plan to leave their business within the next two years and a further 25% expect to leave their business within the next three to five years. Despite succession moving higher up the business agenda, with 17% of respondents describing themselves as preparing for exit, half of respondents told us they have not included exit or succession plans within their business plan.

Poorly planned leadership transitions can cause uncertainty, disruption to operations, management disagreements, lender concerns and, in some cases, can exacerbate financial difficulties and undermine attempts to stabilise or refinance the business.

For directors already navigating challenging trading conditions, succession planning should be viewed as a critical element of business resilience rather than a future retirement project.

Why succession issues matter during financial distress

When businesses encounter financial pressure, lenders, investors, suppliers and customers look for confidence that the company is being led by experienced decision-makers with a clear plan.

Succession uncertainty can create exactly the opposite impression.

Questions can often arise such as, ‘who is responsible for strategic decisions’ and ‘is the next generation capable of leading the business.’ These concerns become particularly significant where the founder remains central to customer relationships, banking arrangements and operational decision-making.

While this can be a strength during periods of growth, it often becomes a weakness during periods of financial stress and creates risks if key individuals step back unexpectedly or there is no clear plan for transferring responsibilities.

In a restructuring situation, this concentration of knowledge and authority can create significant business continuity risks. And the greater the reliance on individuals, rather than documented processes, experienced management teams and clear governance structures, the greater the potential risk to business resilience.

Family disputes can accelerate financial difficulties

Financial pressure frequently exposes weaknesses that may have existed for years but remained hidden during more profitable periods.

Where multiple family members are involved in ownership, disputes can emerge over company strategy, dividend policy and remuneration, capital investment decisions and whether to pursue restructuring options.

The consequences are often more serious than many directors anticipate.

Lenders, professional advisers and potential investors may become reluctant to engage while significant shareholder disagreements remain unresolved.

When the next generation is not ready

In many family businesses, succession plans are based on family expectations rather than commercial realities.

From a restructuring perspective, business owners should ask a simple question: Would external stakeholders back this individual if they were not a family member?

Lenders, investors and turnaround professionals increasingly look beyond ownership structures and focus on capability.

Areas of scrutiny include leadership experience, financial understanding, industry knowledge, credibility with stakeholders and the individual’s ability to manage change.

Distress can force difficult succession decisions

Not every family business will transition to the next generation. While passing a business to children remains the most common expected route (27%) our survey found that a further 7% expect to pass ownership to other family members, while 11% are considering a management or employee buyout and 7% are exploring alternatives such as an Employee Ownership Trust. Importantly, 15% expect their business to cease when they leave and 14% have not yet considered how they will exit the business.

A period of financial stress, however, often forces directors to reassess assumptions about ownership and control. Alternative succession outcomes, particularly those forced upon a business owner, can be emotionally challenging, even though they offer the best route to preserving value and safeguarding employment.

For many family businesses, succession planning and financial resilience are closely connected.

For directors facing both succession uncertainty and financial pressure, early advice can help identify options, strengthen stakeholder confidence and preserve value before problems become more difficult to resolve.