One of the many consequences of the baby boomer generation is that there is now a boom in retirement. There are many articles around commenting on dire consequences of this for the NHS, the housing market, businesses, the next generation and anything else they can think of. But what does this mean for your client base?
How many of your clients are family businesses?
Family businesses are recognised as being key to the success of the British economy. The IFB Research Foundation has estimated that the family business sector made a £418 billion gross value-added contribution to UK GDP, which is 26 per cent of total UK gross value added for 2014.
Succession is important for any business; for family businesses there are more issues that need to be addressed. However, research carried out by Dr Richard Shrapnel and Baker Tilly International showed that only 23% of business owners in the UK, which belong to the baby boomer generation, had completed their succession planning.
Accountants' role as trusted advisors
Accountants are one of the key trusted advisors when it come to a business evaluating its succession strategy. Dr Shrapnel's research also showed that those respondents who reported their succession process was orderly and straight forward, with low levels of conflict, ranked accountants and spouses as their most trusted advisors.
Obviously subject to ethics rules, helping your client through this time could make the difference between keeping a successful ongoing client and losing it completely. And that ignores the fees for the advice!
Understanding the motivators that drive the businessperson is key to being able to provide advice. What are they seeking to do and, crucially, when? If they themselves have inherited the business, is it important that it continues to be 'in the family'. Or, if they have built it themselves, are they doing this for the children? This is the sort of information you should already know about your clients so you should already be on the way to assisting in the process.
What does the next generation want?
Don't assume the next generation will be successful or even interested in running the business. The proverb 'the father buys, the son builds, the grandchild sells, and his son begs' has a lot of truth about it (and I am sure the same applies if we bring it up to date including mothers and daughters).
It is now more common for children to be encouraged to do their own thing rather than carry on in the business. However, when three generations are involved even this can lead to difficult conversations. The role of the advisor is to help the family understand the issues and then to plan on how to resolve them.
In starting to advise a client about succession, it's important to make it clear that you not talking about retirement; the generations have to work together during the succession period for a successful outcome.
When and what
But the question is still when to start. The answer is simple: if you're asking it's already later than it should be.
Once the conversations have taken place it is important that this leads to the preparation of a documented plan and, even more important, that the plan is revised as circumstances change.
Areas that need to be addressed in the plan include the proposed structure, key personnel changes, legal considerations, timetable, contingency/risk management, finances (including current values, retirement income and so on). Of course you cannot ignore taxation.
Even if it is decided that the best solution is a disposal of the business, being involved from the beginning of the discussions allows this to be carefully planned. If all goes well you could end up with a wealthy client to continue to advise and even the chance to pitch for work with the acquirer!