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Family Succession Report from Baker Tilly Ryan Glennon

One of the strongest outcomes from succession that business owners wish to achieve is family harmony following the completion of the process, according to a new survey from accountancy firm Baker Tilly Ryan Glennon.

Suzanne O'Neill, partner in BTRG, observed: “It is clear from the outcome of the survey that succession planning should be viewed as a process of business evolution from generation to generation. It is much more than just the retirement of an owner although this may be a trigger for the succession planning to commence.”

O'Neill has over 20 years' experience as an accountant and tax advisor. She manages the Baker Tilly Ryan Glennon branch in Birr, Co Offaly.

She noted that the recession and the property bust have impacted severely on many owner managed businesses. “There has been loss of personal wealth by business owners in personal investment and properties. Many owners will have endeavoured to secure their own income in retirement through personal investments which may be worth significantly less than anticipated.

“In addition, often owner managed companies place reduced emphasis on securing a pension in retirement for the owner. These factors do present challenges to owner managed businesses when considering the options for passing on the business to the next generation”.

Addressing these concerns well in advance of the event itself presents opportunities to take steps to improve the financial outcome. O'Neill advises: “From a practical point of view, where properties are heavily geared and held outside the family company, there can be opportunities to work with lenders to bring properties onto the company balance sheet.

“This can improve the ability to repay debt and can provide a solution to both the individual and the lender. Another key factor in passing on a business can be the extent of personal guarantees provided by the current owners in respect of their company borrowings, often supported by personal assets.

“There is often a need to re-negotiate these arrangements, well in advance of the retiring owner stepping down from the business.  There may also be scope for the company to begin to make pension contributions to a company pension scheme, in the lead up to the retirement of the owner, which can be achieved tax efficiently”.

Family Dynamics
Another key concern in families owned businesses, is the emotive issues of family dynamics. In reality it is usually neither feasible nor advisable to allow all siblings equal involvement in the ownership or management of a business.

“It is better for the retiring generation to face into the difficult decisions to be made around the future successor of the business, and avoid friction or disharmony in the future,” says O'Neill.

“The guiding principle should be the skill sets required to manage the business and to be fair to siblings based on the historical and future contribution that each have made to the business and will be expected to make”.

O'Neill recommends that owner managers involve the family early on in open dialogue on the decisions and how they may impact. It is also important to discuss the issues with a trusted advisor who is impartial to the dynamics, and who can provide sound and independent advice.

“Many businesses tend to first consider the taxation implication of passing on businesses and are naturally concerned about the capital taxes. There are tax reliefs available for passing on family businesses, which can substantially mitigate the taxes involved.

“The most important financial outcome for business succession are that the owners themselves are sufficiently provided for in their retirement; that the business itself is protected and that all of this is achieved in a harmony between all family members giving certainty about the process and the future.” (26/03/14)

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