• Prepare your kids to take over the family business
Articles:

Prepare your kids to take over the family business

09 May 2018

As of today, 70% of the Belgian businesses are family-owned and should be transferred in the 5 to 10 years to come. In this context, the business magazine “Trends Tendances” interviewed several professionals of the M&A industry, of which BDO, so as to highlight various crucial steps when transferring a family business.

The preparation period and the transmission process take a long time. A well-prepared transmission lasts, on average, around 10 years. During these 10 years, it is advised to discuss and to inform the future owners about the situation of the company: shareholder structure, strategy, potential of the business…. Obviously, communication between parents and children might be difficult: in family businesses, there is a thin line between professional and private life. Yet, these discussions also allow the actual owners to grasp the motivation, the attitude to the company’s values and the competences of the potential successors.

 

When considering the handover of the family business, both generations have to take their responsibilities. On the one hand, the new generation has to present a company vision and strategy and various key projects, and should bring its own contribution to the firm. On the other hand, the older generation is responsible of assessing the competences and the fit of the potential successor(s).

With the objective of assessing the competences of the potential successors, family businesses should establish a family-charter in order to objectify the required criteria for each specific position within the company. Thanks to this measure, jealousy and other mixed feelings can be avoided while increasing the legitimacy of the newly arrived family co-worker.

Moreover, implementing a gradual succession and waiting for a position to open up are signs of a good governance from the family and are generally appreciated by the colleagues outside of the family.

On a practical level, the handover of the shares of the company happens either by a sale or the donation of the shares. Both scenarios have pros and cons; in case of the sale of the shares, the buyer often sets-up a new company and finances, alone or with external investors, the purchase of the family company. Besides the sale of the business, shareholders can also consider donating the shares at a 0% tax rate (subject to certain conditions). But, in this scenario, the old generation does not receive anything from developing the business for years, which should then be compensated by a life annuity rent or allow the parents to keep the usufruct of the shares in order to receive the dividends that will be distributed in the future.  

The full article can be found in the 26th April 2018 edition of “Trends Tendances” and for more information, please contact Johan Hatert.