The goal of most owners of family businesses no matter how large or small is to keep the business and the profit therefrom within the family.
There are many risks to the survival of a business. Many are issues which are contemplated by a business owner, such as the strength of the competition, spiralling costs and changes in consumer habits. These issues are regularly reviewed by business owners and the various professionals advising the business.
* There are certain other issues that can be a risk to business that are not often thought of.
* These risks are great and although seem personal issues at first glance they should be managed just as any traditional business risk.
* These additional risks are mainly of a personal nature, death, divorce, incapacity and other claims on your personal wealth that can affect the value and effectiveness of the business in some cases by diluting its ownership or voting rights.
Precautionary measures that a prudent business owner should take are to investigate the effects of these hidden risks on their business and the financial future of their family. It is important to integrate the management of these risks with the management of the traditional business risks and to take advice from professionals who are able to advise on these personal matters in a business context
Death: Intestacy, dying without a Will, is a huge risk to the survival of a family business. In this day and age of complicated family and personal relationships, there being no such thing as a typical family make up, the intestacy laws that dictate the distribution of an intestate’s estate very rarely reflect a person’s wishes or family circumstances.
Family business owners need to consider succession on death, no matter how mortal this makes them feel. This allows them to ensure that appropriate people are involved to manage the business on behalf of their chosen beneficiaries after their death. In addition it allows them to choose the people they wish to benefit and to ensure that their estate is passed in the most efficient way to them.
Divorce: In divorce it is widely accepted that the stability and succession of a family business can have a dramatic effect. It is possible to manage this risk by the use of pre and post nuptial agreements, not only for the main business owners but the next generation also so as to protect succession.
Incapacity: Incapacity can be physical or mental. Physical incapacity does at least allow a businessman to direct others to act in his place and to allow him to delegate any tasks as necessary at the time.
Mental incapacity however can strike at any time either through a medical condition, illness or accident. These events can occur with no warning and if the correct legal measures are not in place ahead of time then it can be catastrophic as far as a business is concerned as the legal procedure to appoint someone to act on your behalf after the loss of mental capacity is lengthy and costly as well as being emotionally difficult for your family.
Other Claims: Inheritance Act claims. These are specific claims by people who feel they should have been provided for on death from your estate. It may be a claimant is someone that you did not wish to benefit or that you felt should not benefit due to certain circumstances. It is possible that by taking advice in your lifetime you may arrange your affairs so as to limit or exclude costly and litigious claims after your death.
Taxation of various types also erodes the value of a business but importantly for family business owners thinking of exiting a business through retirement or sale then the loss of a business which attracts business property relief against Inheritance Tax in exchange for a cash or a personal asset or investment without such a relief can make a big impact on the generational tax bill. Early consideration and planning could help alleviate some of the impact of taxation.
Always seek professional advice on personal matters in a business context, to ensure that your personal and business affairs are aligned to wealth preservation and preserving your legacy.
