When it’s time to pass the family business baton on to the next generation, it’s vital to make sure that it’s a well-rehearsed and seamless transition.

In any business, succession planning is critical to continuity and long-term success. But research suggests that in family businesses, this important area of planning is often neglected.

Andrew Ward, Head of Industry Specialisation for nabbusiness, says one of the major reasons for this is the ‘emotional element’ of family business. In certain situations, he says, there’s an inherent emotional aspect not present in normal businesses, resulting in a potential conflict between the interests of the business and the interests of the family.

“Many family businesses are characterised by unstated, undocumented expectations,” says Ward. “In any business, relationships and communication are absolutely critical. But you often find that in family businesses, the family members dread having the discussion about exactly what roles and responsibilities family members may have now and in the future – let alone what might happen after a ‘succession event’, such as a significant health issue or divorce.”

Ward says it is “never too early” for family members involved in a business together to sit down and define their goals, operational structure and, most importantly, the means by which roles and responsibilities are passed on as generational change occurs.

“It comes down to understanding what people’s roles are in that business, documenting this with clarity and making sure that it’s well understood,” he says. “Relationships and emotions can complicate this; there might be equal shares of ownership but much different degrees of involvement in the business. All of that has to be discussed such that everyone understands it clearly.”

In some cases, the family’s best interests may be served by actually selling the business and spreading the wealth through the family in an appropriate way, says Ward. This may occur after the business has been in existence for a number of generations. In this case, the business succession plan should address likely buyers for all or parts of the business and address issues such as the taxation consequences for family members.

Above all, he adds, the business succession planning process should draw on appropriate outside expertise – lawyers, to make sure company documentation and estate planning is appropriate; accountants; financial planners for the appropriate insurances; and the business banker.

“As bankers, the better we understand the business and the goals and objectives of its owners, the better we understand the risk element and, therefore, the better position we’re in to fund any structures that are required as part of that succession plan.”

Communication is key – especially open and honest conversations – so that the needs of the family and the best outcome for the business are both achieved.