By Nicola Nutley, Burnetts Solicitors
We find ourselves posing this question to our clients, particularly those with family businesses and agricultural businesses, on an increasingly regular basis. This a huge step forward from years gone by when discussing the future was a subject to be avoided or at least, put off for another day.
Discussions surrounding succession are now more frequently on clients’ minds and we think there are some key factors as to why the landscape has changed:
The bank
There is no more effective way of motivating clients to deal with a challenging subject than if money is at stake. This is very relevant in the agricultural and farming sector where much longer term loans are made to businesses. When lending to this sector, most banks will now insist that a succession plan is in place, for example, a 25 year loan facility where the youngest partner in the business will turn 65 during this term; some lenders are stipulating that a succession plan is drawn up and put into effect as a condition of the loan offer. A comprehensive succession plan must therefore be done in order to obtain funding.
Bad press
The press started publicising court cases where families were at war over disputed Wills and “Promissory Estoppel” claims (for example, Spencer v Spencer [2023] EWHC 2050). These cases highlighted the problem with not having wills and formal, written plans and agreements in place. Broken promises are now actionable legal cases with clear precedents for others to follow.
The next generation
Gone are the days when the only motivation a young person working in a family business needed was the quiet reassurance that “one day, this will all be yours”. In a generation that focusses more on the here and now, it is no surprise that younger members of families with successful businesses are asking the succession question much earlier than their parents did (if they ever dared to raise it!).
Given that succession questions are now being asked more frequently, what are the answers being given? We can break these down into three main categories:
“I don’t know”
Fear of the unknown weighs down on the minds of the best of us. The last few years have been turbulent for most businesses with covid, lockdowns and the aftermath and then a period of high interest rates and inflation. You can start to see how uncertainty surrounding the future of a business would have a negative impact on someone’s wellbeing. However, not knowing what the plan for the future is can sometimes be a good thing; it allows you to start from a blank canvass. With the right professional support from your trusted advisers, you can explore the options and make an informed decision from there.
“Well, Peter is going to get the farm and Paul is going to get a house paid for”
The difficulty with knowing what you want for the future is that most clients have come to this conclusion without appreciating the wider implications. It is not uncommon for clients to write their Wills leaving legacies for those children who are not involved in the family business. Many of these legacies are simply not viable and the end result is that the farm, or the shares in the family company, would have to be sold in order to pay out the legacy. When presented with this net impact, clients often state that this is the last thing they want!
“I’ll bring Peter into the business when he’s ready”
Define ready? What do you mean by bring him in? What assets are in the business? Leave it too long and Peter will have gone to work somewhere else. Do it too early and without proper advice and Peter’s divorce settlement will devastate the business.
There is no doubt that succession planning is increasingly at the forefront of clients’ minds. Early input from your professional advisers remains key if you are going to look after the best interests of all those involved.
If you would like to discuss succession planning in a family business or an agricultural/farming business, please contact Nicola Nutley, head of our Newcastle office and she will arrange for one of our colleagues to get in touch: nnu@burnetts.co.uk
0191 9174697
www.burnetts.co.uk