This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice please consult us here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
Running a family business can be a mixed blessing. One benefit is that you get to work with loved ones and build a legacy together. However, family dynamics can be complicated and this can make it difficult to set boundaries.
There are 3 million family businesses in the UK employing 9.4 million jobs. Indeed, 87% of businesses in the UK fall into the category of “family business”, accounting for one-third of GDP and providing a huge source of revenue for the government (e.g. via VAT and corporation tax).
In this guide, our Padiham financial planners share 5 tips to help family businesses avoid common pitfalls which could undermine their goals and success. We hope this content is useful to you. Please contact us if you want to discuss your financial plan with an experienced financial planner in Padiham.
#1 Learn to treat family as employees
One of the biggest challenges faced by family businesses is always remembering that family should not get special treatment at work. If a family member is late coming in, for instance, then this needs addressing – not avoiding to try and preserve amicability.
Clear expectations and rules need to be set from the very beginning. These need to be reinforced over time as these are occasionally overstepped or forgotten. The more you let bad habits slide, the harder it will be to keep everyone united together for the business.
Be careful when setting salaries and giving bonuses to family members. It can be dangerous to let inconsistencies emerge between family and non-family staff. Formalise your positions and be clear from the beginning about the responsibilities and rewards.
#2 Maintain clear communication
Different generations working together can be highly effective in a family business. Younger and older family members can share unique insights and wisdom for mutual benefit.
However, different attitudes, working practices and communication styles can lead to friction and, if not careful, outright conflict. Be especially mindful of “non-official” power dynamics which could cause problems.
For instance, suppose a younger brother is the formal owner of a business but other family members tend to look to the older brother for leadership (who may occupy a less senior role). This can undermine the business culture and make it difficult to find solutions.
Problems like these can be avoided if addressed from the outset. Yet it also helps to maintain healthy cultural practices going forwards, such as encouraging people to ask questions (e.g. about management decisions).
Staff – including family staff – are more likely to feel valued if their voices are heard.
#3 Have a succession plan
Who will take the reins of your business when you die or step aside? Family businesses tend to have an advantage here, since their mindset is often to think inter-generationally.
However, not all family businesses have a clear, strong succession plan. This may be due to fears about asking CEOs about retirement plans. Or, a CEO might worry that a child has other ambitions outside of the family business.
Working with an experienced, impartial financial adviser can be very helpful here. This person can provide some objective insights, unaffected by personal biases or interests.
It might be that your business has no clear family successor. If so, then you may need to plan a viable exit strategy with an experienced adviser.
#4 Plan for both your estate and business
If you are employed, you likely just need to concentrate on your own financial plan – e.g. your own tax plan, estate plan, investment plan and retirement plan. Business owners and directors, however, also need to think about their business financial plan.
The two are almost always intertwined. A financial planner can help you align both to achieve common goals. For instance, your business could be a vital inheritance tax (IHT) planning tool, helping to pass more wealth down to your children when you die.
This is because many of your business assets could qualify for 50% or 100% IHT exemption under Business Relief. So, with some careful planning, you could link your succession plan and your personal estate plan together – leaving your business in trusted hands whilst ensuring a strong legacy for your loved ones.
#5 Plan for the unexpected
Your personal financial plan needs a protection plan to help you weather the storms of life, such as an expected injury stopping you from working.
Businesses also need a protection plan. What happens if a key shareholder dies and their beneficiaries (with little experience or interest in your business) inherit their stake in your business? What if a crucial member of staff dies – e.g. a senior salesperson – and a large “hole” is created in your cashflow?
Planning for the unexpected with a financial adviser can help your family business survive – even thrive – in such circumstances. This might involve setting up shareholder protection and key person protection, providing crucial lump sums in the above scenarios.
Invitation
If you are interested in starting a conversation about your own financial plan or investments, then we’d love to hear from you. Please contact us to arrange a free, no-commitment consultation with a member of our team here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.
Reach us via:
T: 01282 772938
E: info@elmfieldfp.co.uk
