UK body the Institute for Family Business (IFB) has issued a plea to chancellor Philip Hammond, urging him to fully preserve Business Property Relief (BPR) in today’s Budget.

IFB argues that the measures included in BPR are directly linked to the welfare of the nation’s family-run firms: by providing relief on inheritance tax during generational transfers of business assets, it notes, BPR helps to smooth the succession process. As a result, the measures promote continuity – a valuable ingredient for ensuring that family firms appeal to investors. IFB is eager to persuade Hammond not to side-line “a long-term approach which focuses on stability and sustainability”.

The organisation’s plea is very much based upon the assumption that family firms will – in the vast majority of cases – be passed from parents to offspring ad infinitum. But news from China indicates that a similarly traditional outlook on family firms in that country is gradually ebbing away from the national consciousness. Indeed, fewer than 3% of businesses of this type in China are now transitioning to third-generation owners.

According to wealth management consultancy Wise Counsel Research, ever-larger numbers of successful, Chinese family firms are recruiting professional managers from outside. The organisation’s president Keith Whitaker says: “The reality is that lightening doesn’t tend to strike twice in the same place. Families may have a very ambitious, very powerful matriarch or patriarch who creates wealth, but their children may have very different interests.”

Family firms have a uniquely political set of succession hurdles: some children may expect to claim what they see as their birth-right, while their parents may not be sure they can handle the brief. On the other hand, some parents may expect to hand over to a specific child, who then proves reluctant to seize the mantle. What kind of strategies can family business owners employ to ease the path of succession without causing conflict?

The Institute of Leadership & Management's head of research, policy and standards Kate Cooper points out: “The key here is to be scrupulously honest about your expectations as early on as possible. From the founder’s perspective, this issue should never be approached as an afterthought. It is vital to have succession plans in place on a rolling basis that are ironed out and at the ready for any eventuality. Those plans should reflect the nature and values of the business and how it should be operated, and come complete with all the job descriptions, role specifications and strategic plans that are deemed essential for the firm’s survival.

“That way, if there’s a match in the family line – not only in terms of skills, but desire, too – then it will make obvious sense for one or more younger members to take on the relevant responsibilities. If not, then at least the plans will contain everything that someone from the outside will need to know in order to smoothly step in.”

Cooper adds: “It is a tough formula to crack, because owners – who will always have a very personal attachment to their firms – will be very wary of where they choose to lay their trust. Also, owners often worry about what they will do when they step down: family firms are renowned for being all-consuming draws on their leaders’ energies and sense of purpose, and that’s very difficult to relinquish. Old habits die hard.

“But in the end, open and honest conversations are the best routes through the thicket of variables that family succession presents. Difficult conversations are often the most effective way to forestall difficult situations. Apart from that, though, one option that’s always open to the owners of a family firm is to sell it. That way, the business will continue its fine tradition and remain sustainable, so there will be a legacy for the founders. The only difference is that it’s no longer run by members of the family. Of course, it’s a weighty decision – so every conceivable option must be mapped out.”

 For further thoughts on how to ready your organisation for the future, check out these learning resources from the Institute