Passing on the baton to the next generation or an existing management team can often be easier said than done. The emotional wrench for founders and owners who may have spent decades nurturing the business is just one of the hurdles to overcome.
The most common pitfall we see is a lack of early and structured planning, says Alison McHugh, partner and head of private client services at EY Ireland. “In addition to the normal challenges that private businesses face when planning for succession, family businesses can often face additional challenges due to tax, estate and emotional factors.
“Often Irish families can be reluctant to discuss sensitive issues relating to the future ownership and management of the business, which can result in the succession conversation then being triggered by sudden events such as illness or death rather than being proactively planned.”
Another potential pitfall is poor governance such as informal agreements or “handshake” arrangements which can lead to disputes in the future especially if family members have different expectations around the future operation of the business.
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When it comes to succession planning, it’s a case of the sooner, the better, says Mairead Harbron, partner, PwC Private. “Ideally, business owners should get the ball rolling about five to 10 years before they plan to step down. Starting early gives them the opportunity to address tax efficiency, get a solid strategic plan in place, and groom their successors for future leadership roles.
“With time on their side, they can tackle potential stumbling blocks head-on and ensure the transition aligns with their personal financial goals as well as the long-term success of the business.”
McHugh recommends that business owners start planning for their exit at least five to 10 years in advance. “Whilst this may seem early, many important tax reliefs such as CAT [Capital Acquisitions Tax] business relief and CGT [Capital Gains Tax] retirement relief are dependent on meeting a number of conditions, including ownership period. It may also be necessary to implement some restructuring to ensure that the various conditions for the reliefs are met.”
There are several effective structures and strategies to ensure there is a smooth transition of the business, according to McHugh. “The optimal structure will depend on the owner’s goals, the business’s maturity and the readiness of the next generation to take over. If the intention is for the business to remain within the family and transfer to the next generation, often the shares will transfer directly in order to benefit from key reliefs such as CGT retirement relief and CAT business relief.”
In some cases, McHugh says that families may decide to transfer the shares to a family trust, perhaps where the conditions for business relief are not met or to avoid dilution of interests as the shares pass down through the generations. “If parents need to access value in the company to fund their retirement, some of their shareholding may be sold back to the company.
“Employee share option plans [ESOP] are an effective way to reward and retain key management and may be worthwhile to consider as part of any succession plan, particularly where there may be greater reliance on key management as the next generation find their feet in taking over the management of the business.”
In practice, however, there is often a preference in Irish family business to retain ownership within the family, so we rarely see ESOPs in family business, McHugh explains. “Where there is no family successor, some business owners may favour a management buyout rather than a third-party sale as this keeps the business in familiar hands.”
Succession in family-run businesses often brings emotional complexity into play, says Harbron. “In these situations, it really helps to have neutral advisers or mediators involved. They can facilitate open conversations among family members, making sure everyone’s thoughts are heard and understood.
“Having structured dialogues can defuse tensions and ensure decisions reflect both family interests and the needs of the business. In my experience, clear communication and setting agreed goals can significantly reduce potential conflicts and help to steer the succession process smoothly.”
A family charter can provide a framework for dealing with several key issues that have the potential to cause conflict in the future (for example, reward, roles of family members in the business and so on), continues McHugh. “By having clarity on these matters before any issues arise, it can help to reduce the risk of future conflict.
“It is very important to separate family issues from business issues, and the family charter can include provisions to ensure this is done effectively.”
Irish SMEs are more aware of the need for structured succession planning, but many still leave it too late, says McHugh. “Whilst awareness is growing, often day-to-day operational pressures and the emotional side of having what are sometimes difficult conversations means that some business owners continue to put succession planning on the long finger.”
“As more success stories emerge, SMEs are slowly but steadily increasing their proactive engagement in succession planning,” agrees Harbron.
Succession planning is not only a family or shareholder concern. Many Irish SMEs play a central role in their local economies, particularly in regional and rural areas where they may be significant employers or essential service providers. When ownership transitions are poorly prepared, the resulting instability can affect not just the business itself but also local jobs, supply chains and community investment.
Conversely, a well-managed handover helps preserve organisational knowledge, maintain customer relationships and retain skilled staff, outcomes that strengthen local economic resilience. Professionalising governance and leadership early can also make businesses more adaptable, positioning them to respond to new market conditions or growth opportunities.
As Harbron notes, the stakes extend beyond the founder. Getting succession right can support continuity and stability in the broader business ecosystem, ensuring that the enterprise remains a long-term contributor to its community and sector.
Succession planning is a critical economic issue for Irish SMEs, as it impacts business continuity, job preservation, and economic stability within local communities, says Harbron. “Effective planning ensures that businesses remain operational and competitive even as leadership changes whereas poor planning can lead to shocks to the business (from large shareholder tax bills to customer loss) which destroy value and jobs.
“Succession planning ties directly into broader economic sustainability, ensuring that successful enterprises continue to contribute to the economy over time, enhancing resilience and growth.”
Ireland offers a range of tax reliefs and advisory support to assist business owners with succession planning, Harbron adds. “However, many of these tax reliefs come with complex conditions and clawback provisions, which can make them a bit tricky to navigate.
“Business owners often find that the intricacy of qualifying criteria and the risk of potential clawbacks, where reliefs can be reversed if specific conditions aren’t met, can be quite daunting. This complexity can sometimes deter engagement, even if the incentives themselves are beneficial.”
To encourage more structured transition planning, reforms should aim to make tax incentives related to succession planning more straightforward and appealing to business owners, Harbron contends. “Educating and increasing awareness through initiatives are crucial too, helping SMEs get to grips with succession planning in a way that’s effective and reassuring.
“In addition, I would love to see the formal introduction of employee ownership trusts into Irish tax law to give another flexible succession option to Irish business owners wanting the ethos of their business to continue and to keep ownership in domestic hands.”
