It can take a lifetime to build a successful family business that can endure as a legacy; however, a lack of proper planning can quash any dreams of you have of passing it smoothly on to surviving family members. It is startling and sad that nearly two-thirds of family-owned businesses fail in their efforts to transfer the reigns to the next generation, but the reality is that most of these businesses failed to plan. The question any family business owner who has toiled to build a great business must address, sooner rather than later, is “how do you pass the mantle”?
Business Succession Planning
A succession plan establishes the process of transitioning the business from one owner to another. For a family-owned business it also delineates the roles, responsibilities and ownership interests of family members under the new ownership. A formal succession plan also addresses the key challenges that a family-owned business faces in transition, such as, how to compensate family members who are not actively involved in the business.
For a succession plan to have any chance of success the planning process must begin early and all family members need to be engaged in its development. One of the biggest challenges facing the family business owner is finding and grooming the right family member(s) to leave in charge of running the business. And, in some instances, if there isn’t a ready successor for CEO, the business owner needs to be realistic about appointing a non-family member to the post if necessary.
Children often stray from the business as they find their own interests or, perhaps, develop intolerance for the family business. This is often a painful process for business owners who hope that their children will care as much about the business as they do. Any succession plan may need to include a deliberate process for engaging the heirs and “selling” them on the value of maintaining the business as a family legacy, whether or not they are active participants.
Succession planning should begin with any family members who are actively involved in the business. They should be a part of the process of establishing long term family and business goals. As time passes, it may become clear that one or more of them are not suited to be a successor, so it will need to be determined what, if any role they will have with the business.
Children can pose particular difficulties due to sibling rivalries and their relative interest in being in the business. For the children who express an interest and demonstrate the competency and temperament needed in a successor, a clear development path should be laid out that will enable them to build the needed skills and to achieve milestone business goals. It may be advisable to have an advisory board create a set of standards and qualifications that must be met so that an objective choice can be made among competing children.
For children who aren’t meant to be CEO but want to be in the business, there has to be a reasonable path for advancement in the business, as with any career opportunity. This will keep them engaged and interested in pursuing the goals of the family business. Children who are discouraged or who develop personal or professional jealousies may have to be weaned from the business so they don’t become a disruptive force.
Seek Professional Guidance
Consider hiring a business consultant who specializes in family businesses. She can provide an objective and stabilizing influence that can counter the emotional biases of family members in the planning process. The consultant can also play a facilitating role on the advisory board so that the input of the family members can be weighed equally with the input of the non-family board members for a balanced approach to the planning process. This also can ensure that the consultant maintains an ongoing relationship with the family business as it transitions to the new ownership and leadership.