How to avoid complications when exiting a family business

Walking away from a family business can be hard, both financially for the business and emotionally for the individuals involved.

A recent example is the Sussexes parting from the world’s most famous family business, the Royal Family.

There are ideal scenarios that will aid in a clean break from a family business, but these measures are not always in place. Certain plans that will help the process include:

Succession planning

A succession plan should be in place in any business, for example who will take over certain roles if a member of the team was to quit, and how, financially, the business will be structured.

If a family member exits the business, efficient planning will enable the company and the individual to exit as smoothly as possible.

Shareholders agreement

Having a shareholders’ agreement in place, as a pre-agreed structure, will help dictate what happens if a shareholder should quit. It should also cover any financial complications. This agreement will aid in covering worst case scenarios and will govern the way in which the company continues to run.

However, if the exit is not planned, the process can be a lot more complex.

If the individual is quitting the business entirely, and withdraws his/her share in the business, then the business may have difficulty raising the funds to buy back those shares.

The business may not be in a financial position to be able to do this as an instant transaction, and therefore will have to find funds. This could in turn impact cashflow and overall business plans for the future.

Planning for the future

Leaving a family business, or having to deal with a family member exiting the business, doesn’t have to be a perilous process.

Having structures and processes in place within your business to cover all sorts of implications will benefit the company and the individuals within the business considerably.