Business owners should not wait for the exit point to come close but start planning years, even decades, in advance, a succession and governance consultant has suggested.
Russell Prior, head of family governance, family office advisory and philanthropy for HSBC Global Private Banking, said succession planning for business across the globe was becoming increasingly complicated, as family dynamics and globalisation have changed the way many companies operate.
But he said the fundamentals of how to plan for an eventual exit strategy remained the same, regardless of the type of business or the jurisdiction.
According to Prior, these are having a clear plan for ownership transition put in place long before the eventual exit, and good communication.
"Even if your plans change along the way, you have at least considered the various possibilities and eventualities, and are able to take control," he explained.
Great expectations
His comments followed the publication of HSBC Private Banking Group's Global Entrepreneurial Wealth Report 2023.
This surveyed current and former entrepreneurs across nine markets to produce a global picture of business leaders’ outlooks and priorities.
The 45-page report found:
- Some 35 per cent of UHNW entrepreneurs planned to exit their business within the next five years, yet the amount of time invested in preparing for exit was typically disproportionate to the time spent investing in business set-up;
- It also found 39 per cent of entrepreneurs wanted to hand the business over to their family (the highest proportions of which were in Asia);
- Some 38 per cent had already started to transfer wealth for the next generation;
- Nearly one-third of respondents said they were going to start the succession plan when the next generation was ready - though there was no defined pattern of what constituted 'readiness';
- However 64 per cent of those interviewed admitted they had not even started talking to their families or business partners about transfer of ownership.
According to the research, a significant proportion did not have any plans to sell or pass on their business - which could indicate they have only just started out in the process of business-building.
But Prior said: "The issue of ownership transition is an interesting topic for business owners - for advisers as well as their clients - as very often owners are so caught up in starting, building, developing their businesses they do not often focus on the topic of ownership transition.
"However, the reality of this is that succession is a question of 'when', not 'if'."
Prior said: "It will happen at some point in the life of a business owner and what I would say is they should take more control over that likelihood, rather than circumstances dictating when it happens."
He added owners needed to be in control of what was happening to the business and to have scenarios planned for, even if they are not realised.
For example, Prior said: "What if you receive an unexpected bid? What happens if something unfortunate happens to you or the family?
"What if your desired successor becomes ill or leaves?
"You need to prepare for these eventualities as well as have clear plans that you have communicated properly."
Great complications
The more international, the greater the level of complexity, as HSBC Global Private Banking and Wealth's chief executive Annabel Spring said: "Our research shows that the wealthier the entrepreneur, the stronger their desire to pass on their inheritance to their families, yet also the less prepared they are for it.
"This is no contradiction: the transfer between generations can pose complex challenges, particularly when the management of a business move from the founder to their extended family. This is especially true for larger and more dispersed families."
