A family business is more than just an enterprise: it’s a legacy. When passing the torch to the next generation, it’s important that the necessary groundwork is laid to allow successors to hit the ground running. Inheriting a family business is both a privilege and a responsibility, so it is vital that the individual and the business are well-prepared for the change.
It’s not as simple as giving someone keys to the business, careful planning, structured development and training, and a willingness to embrace both tradition and change are all required. Known as The Great Wealth Transfer, more than £5 trillion in family wealth is expected to transition from one generation to the next within 30 years As a result, a critical question arises: how do we turn heirs into effective leaders capable of growing the family business rather than merely inheriting it? In this article, we explore ways to train and develop the next generation of family business leaders and prepare the business itself for the all-important transition.
The succession challenge
Start early: the earlier a succession plan is considered, the better positioned the business will be to thrive. Successful transitions are generally thought to take between seven to ten years so a delay in succession planning can be detrimental to the readiness of the next generation and the stability of the business itself. With the likelihood of the survival of a family business decreasing with each generation (30% survival by the second generation and three to five per cent by the fourth generation) a succession plan should be pro-active, rather than reactive.
Think about who will thrive in the key roles in the business. Thought processes that create an assumption that the “next in line” will automatically be best suited to lead the business should be challenged. Consider carefully who has the skills, interest and potential to successfully lead the business. Qualities like empathy, strategic thinking, and adaptability are often considered important in a leader so embrace objectivity and don’t be afraid to consider candidates from outside of the family, if required.
Business succession can be difficult, particularly when managing relationships and emotions. For this reason, you may consider taking external counsel to assist with the decision-making process. If conflict arises, then mediation can be a useful tool to assist with communication between parties, protect relationships, and arrive at a mutually acceptable conclusion, putting the business first. Even the strongest businesses risk faltering when leadership change occurs, so it’s vital that the decision to appoint a new leader is carefully thought-out.
From promise to power: training and developing real leaders
As custodians of the business, it is imperative for future leaders to earn their place, rather than rely on inheritance. Preparing the next generation requires a multi-faceted approach to build their competence, skill and confidence to lead effectively.
Relevant education plays a critical role. Formal education (such as degrees or courses in areas like business or finance) can equip heirs with the knowledge and skills needed to make informed decisions in managing the health and operations of the business. It can also signal their genuine interest, commitment to professional development, and willingness to carry and improve the family business.
Formal education isn’t the only way for individuals to “learn the ropes” however, and on-the-job learning is often just as, if not more, important. That is why obtaining experience across all departments of the family business can often be invaluable. Understanding the inner workings of the business fosters respect amongst employees and a deep appreciation for operational realities. It ensures that heirs are well rounded and capable of making decisions based on practical understanding of the culture of the company and its people. Mentorship can be an effective tool in developing an individual’s business (and/or industry) specific skills and knowledge. Of course, this doesn’t detract from the benefits that can arise from a fresh, external perspective, but often extensive business experience will win out.
Moreover, by working outside the family business, future leaders gain exposure to diverse perspectives and new ideas. Consequently, this broadens their understanding of how businesses operate in different contexts and ensures that they bring new insights with them to the family firm. External experience also helps heirs develop independent credibility, build networks outside of their own family, and ensure that their decisions are taken in the best interest of the business and not just familial or personal interests.
Innovation is at the heart of company growth and, as such, future leaders must bring new ideas to challenge the status quo and propel the business forward. Leadership is not maintaining what already exists, but steering the business towards positive development.
Employment law considerations
From an employment law perspective, it’s crucial to ensure that all mandatory contracts and policies are in place and up to date. The Employment Rights Bill, due to come into force next year, means it’s paramount now more than ever to prepare the business for important legal changes and protect the company, and any successors, from legal challenge.
Staff turnover is a risk that comes with transition of leadership in a business. This is particularly true in family businesses, where leadership often has a considerable influence on the culture of the business. From a people-management perspective, it’s important that staff feel valued and heard, meaning employee consultation can be a very useful tool. When the time comes, staff should be fully informed of the leadership change. Having someone that has worked in various facets of the business and is therefore known by many of the staff can help build trust and confidence in the leadership, boosting staff morale.
Arguably the most important factor in company succession is facilitating the knowledge transfer between current and future leaders. For this reason, it’s important to have precise record keeping of things like internal processes, finances, and supplier relationships to allow any new leader to make informed decisions straight from the off.
However, the transfer of a business is rarely the end of the story. Previous business leaders will often remain “on hand” to assist with a successful transition and to support new leaders with any issues that might arise. When this happens, it can be helpful to discuss with an external employment law adviser the best method of implementing this handover and what method is most effective, legally, to retain that trusted and invaluable experience within the business going forward.
Looking ahead
Succession is not a one-off event – it is a process. Passing the torch from business-leader to successor requires intentional training, mentorship, planning, and time. It’s not just about keeping leadership within the family; it’s about equipping the family to lead. By investing in the next generation, family businesses can ensure their legacy is not only inherited, but also strengthened, reimagined, and secured for the future.
It can be easy to become engulfed in the day-to-day running of a family business but take a step back and consider the future. By beginning succession planning now, you are equipping you, your family, and your business with a sustainable future.
Our Private Wealth team is here to help you navigate this transitional time, providing clear and practical advice to ensure the safeguarding of your family business. Our experts regularly advise on tax, succession, property, and employment matters, giving you the advice you need across the board.