Paula Fraser: Plan now to ensure smooth handover of family business

Whether your business has just started trading, or you are thinking about retiring and planning to hand the controls over to a family member, in a world surrounded by economic uncertainly, livelihoods and businesses are under more pressure more than ever.

While we ride out the storm and look at ways to reduce the impact caused by the credit crunch, recession and globalisation, focus and attention should not just be directed toward long-term growth and survival, but additionally, to succession planning.

Running a family business in the world today is very different to what it was 50 years ago, or even ten years ago. And today's entrepreneurs may want to pursue their own interests as opposed to working, and running, the family business.

Planning for the future is prudent, and if succession planning hasn't entered your mind, then the subject needs to be addressed as a priority so that you know who will take over the reins when you decide that the time has come to hand over the business.

Without an effective plan, the future of the business may be put in jeopardy; or, as the owner, you may suffer financial or tax consequences that are avoidable. Equally, it is important to update your will to reflect any changes to your financial circumstances.

Although succession planning can be simply defined as the process of transferring the control and ownership of the business, developing and executing a succession plan is not nearly as simple in practice.

Hard questions need to be answered, and it is worth sitting down and discussing your wishes with your family.

For example, how long do you intend to stay in the business, and if you are the majority shareholder, will you want to continue having control and the overall say in any decision-making, or do you want management to become more involved in the running of the business or is it your intention to sell the company?

If you do want management to become more involved, then have you identified the managers capable of growing the business into the future?

Do you want to pass the company to the next generation? If you do, then it is also worth bearing in mind that younger family members tend to have different entrepreneurial minds and are more likely to be influenced by technological advancements, may be willing to take more risks, or perhaps may want to take their business ambitions into another industry.

There are lots of questions to be answered, but if you are planning on passing on your business venture to your children or grandchildren, then it is important that you don't assume that they will automatically want to be responsible for taking on the existing family business and driving it forward.

While it can be difficult handing over a company which has seen a lot of your time, effort and money invested, if you want the business to continue to grow within the family unit, then it is fundamental that you sit down with your family members and discuss everyone's expectations, as well as roles and responsibilities. Emotions may be running high, and no-one is denying that the issues are complex and somewhat uncomfortable, but burying your head in the sand or delaying the moment will not make them go away.

And while solutions exist to such quandaries, they won't appear overnight, which is why it is essential to begin considering succession issues as soon as possible.

It is fair to say that succession is one of the hardest challenges a family business can face, not only for the family but also for the staff and for the clients of the company. However if you want to ensure long-term survival of the business, minimise taxes and - for family enterprises - maintain healthy family relationships, it's never too early to put a succession plan in place.

• Paula Fraser is a private client tax director at Grant Thornton and leads the firm's south Asia group in Scotland, specialising in business issues affecting the Asian business community