Family firms with years of successful business behind them could be heading for a crisis.

Jonathan Grant, a partner in the corporate department of leading Sussex law firm Argles Stoneham Burstows (ASB), has urged owners to prepare for succession well in advance.

He said firms faced unnecessary crisis, even total collapse, by failing to plan beyond the existing generation of owner-managers.

Directors of family businesses needed to ensure that control could be passed on easily and without dispute if senior shareholders retired or died.

He said: "Without proper planning for succession, or the sudden loss of owner-managers, family firms which have been built on many years of hard work and dedication can be desperately vulnerable.

"If all that past endeavour is not to be wasted, it is essential to make sure the company will survive succession or, if the business is to be disposed of, that any sale is for the best price attainable. The unexpected departure or death of a key shareholder is a particular hazard for many family businesses. It is essential to provide for this.

"If shares are to be distributed to other shareholders and the spouse or estate is to receive fair value for them, funds will be required. If sufficient cash reserves are not likely to be available, life cover or a similar insurance should be arranged to provide these funds."

Mr Grant advised that managing a family business over an extended period required a recognition of the different priorities between generations, realism and pragmatism on all sides and some careful strategic thinking.

He said: "A common problem with family companies is that control rests in one senior family member or a small group of relatives. This may create problems in the future and a mechanism to equalise share-holdings should be considered, whether to involve younger generations in the business or to prepare the company for sale."

If the requirement was to plan for the exit of a senior family member, this could be achieved over a period of years, possibly through the use of pension schemes, consultancy arrangements or by using company funds buy-back shares.

Maximising available tax relief also required advance planning. For maximum relief, which could reduce Capital Gains Tax to ten per cent, the shares had to have been held for four years.