Family firms are the engine room of the Scottish economy, and they continue to contribute significantly to employment, economic output and the creation of wealth, on top of making a real impact on the communities in which they are located.
Family businesses come in all sorts of guises, with varying internal challenges and external market forces. But one thing they all have in common is that eventually someone else will need to take the reins. While it’s possible that the business could be sold, most know with certainty that succession will be passing to the next generation. So, with such inevitability why is this a subject that often isn’t discussed until the eleventh hour?
Business Owners will most likely be aware of the important Inheritance Tax (“IHT”) relief currently available on the value of their businesses. Business Relief (“BR”) can relieve the full value of the business and it has long been recognised that the policy objective behind the relief is to prevent the breaking up or sale of businesses on death. Whilst this may be hugely advantageous for all businesses, the benefit is perhaps most keenly felt by family businesses where the legacy is as much about heritage and history as it is about a continuing trade.
Scottish family businesses are the engine room of the Scottish economy with many of them having been around for generations. Recent studies have shown that around 65% of all private businesses in the UK are family controlled and that family firms account for around 25% of UK GDP, over 45% of all UK employment and create significant wealth too.
As the family business grows, succession can be a challenge. In order to bring the relevant knowledge and expertise to continue to grow the business, it is usually necessary to move to a more “corporate” structure and recruit senior management out with the family. However, to attract and retain the right talent finding a remuneration package that rewards and empowers management, without conflicting with the family’s objectives, can bring challenges. This is an area many of our clients ask for assistance with as they strive continue their business success by striking the right balance of being commercially minded whilst continuing to protect their legacy.