Whatever next? Succession planning problems

The best way to get something done is to begin, as the saying goes. When it comes to succession planning, though, it’s also important to complete the task. The danger for business owners is that their plans remain in preparation or unclear and that this only emerges after they’re gone. In those cases, the consequences for the business, those left to run it and its new owners can be profound.  

S&W’s recent Business Owners Sentiment Survey (The BOSS) of 500 owners in businesses with at least £5 million annual revenue suggests there’s still plenty of work to be done. One in five (18%) said that they had some plans, but these needed reviewing or additional steps. Another three in ten said either that they hadn’t created a plan (16%), although they intended to, or they were reluctant to create a plan in case taxes or rules changed (14%). Just over one in ten (11%) said they hadn’t even considered succession. 

Only a quarter (24%) of business owners said they had a “detailed and documented, up-to-date succession plan in place”.  

As Toby Tallon, Personal Tax Partner at S&W says, it’s often difficult to gauge the state of businesses’ planning because of different ideas about what a succession plan looks like.  

“Succession planning means different things to different people,” says Tallon. Most commonly, business owners may have a will and have had some discussions about who would take over in their absence.  

“A proper succession plan is much more than that,” he says.  

What a succession plan should include will depend in large part on the nature of the business. For larger corporates, the key issues are often around roles and responsibilities, and this is where plans can flounder. 

According to Consulting Partner Claire Burden, many businesses have informal agreements or even written plans for who will fill key positions, such as the chief executive, CFO or head of operations. But, too often, these focus on replacing people and positions rather than capabilities.  

“They often just man-mark, matching the role and responsibilities of an incumbent, who has one set of skills, with somebody coming up through the business, who may have completely different skills,” she says.  

“There needs to be much more consideration given to matching the capabilities and the skillsets of individuals against the work they’re going to be asked to do.” 

That will include both the practical and operational, day-to-day tasks required of the individual and the strategic thinking essential for continued success. It also means that the succession plan should anticipate not just the internal changes but those outside the organisation. The skills needed by the future leader could be very different to those of the current CEO.  

Crucially, clarity over the capabilities required enables a business to transition team members into new roles so that they begin taking on new responsibilities and building the experience and expertise needed before the handover. While businesses should have contingency plans in place for sudden departures or deaths, successions are ideally a long-term process rather than a single event. 

“The best succession plans are phased over years,” says Burden. “It’s gradual so that, by the time to actually transition, there’s very little left to do.”

For many family businesses, of course, the business is inseparable from personal wealth, bringing increased complexity to succession plans, which must consider both.  

Most business owners have wills, and families with significant wealth increasingly make use of prenuptial, postnuptial, cohabitation and personal agreements. But succession plans often fail to adequately address essential ownership and operational issues through governance documents, family charters and other tools.  

“Even where there are plans, they don’t necessarily go far enough when it’s a complex family,” says Vanessa Lee, S&W’s Head of Private Wealth and Family Offices. Family business owners often wear many different hats, she adds. Filling all those roles can require a larger headcount.  

A detailed succession plan will need to consider the business, the family and the overlap between the two – as well as the roles played by a range of independent third parties who serve either or both, including lawyers, trustees and non-executive directors. Failure to cover all the issues can result in family conflicts, uncertainty and business disruption. 

Even with a detailed plan in place, however, the work is not done, warns Lee. Succession plans need regular review. “Whether it’s a marriage or death or the sale of a business division, there’s a whole raft of reasons why a plan may need to be revised,” she says.  

Those reasons also include tax changes. If you wanted to find a silver lining to the proposed alterations to business property relief, (BPR) announced in the October 2024 Budget, it’s that these have prompted many families and business owners to take succession even more seriously.  From 6 April 2026, 100% BPR will be limited to the first £1 million, with any excess only benefiting from a 50% relief: an effective inheritance tax (IHT) charge of 20% for individuals, and 3% for trusts. In many cases this IHT charge will end up having to be funded from the business, with consequences its growth plans and potential for further income or capital tax charges being incurred.   

“It’s driving people to review their financial affairs,” says Tallon. “For a lot of people, succession planning has been shelved as being too difficult, but at least there was no tax. Now, there’s a real need to review the plans, because otherwise not just their families but also their businesses could suffer.”