Family Business Transition Planning: Preserving Your Legacy for Generations
Planning for the succession of a family-owned business takes organization and communication, as this process requires the vital exchange of leadership duties. Uncertainty has shown family businesses how quickly circumstances can change regarding employment, the economy, and business operations. To stay on track for family business transition planning, the best thing families can do is to have a succession process.
The succession planning process involves many factors. To address these factors and work through complications, it is important to understand the benefits, challenges, and principles of succession planning.
Benefits
One key benefit of the succession process is that it preserves the family legacy. Planning ahead means that all of the factors of running a business—finances, employment, and marketing—will be clearly defined for future generations. Part of this organization also means clarifying the roles different family members will assume to avoid confusion or conflict.
Another benefit of succession planning is that children and grandchildren have time to learn about common challenges to running the business. This planning period allots time for training and working through challenges with guidance from the senior generation. This also allows younger generations to explore their future role and ask questions or make changes.
Challenges
Many family businesses employ workers outside of the family, which is a key challenge for family business succession planning. Employees who have been in the business for decades may feel alarmed at the change in leadership or may feel overlooked. Senior generations should address this challenge by fostering quality relationships with all employees that show them they are valued. Transparency is also essential, as employees are less likely to feel shocked if they understand the leadership succession plan.
Another challenge within long-term succession planning is deciding which family members will assume which roles. This can be an emotional process if surprises or conflicts arise within the succession plan. Open communication is essential, as this will include all key family members of the next generation in the planning process.
Finally, some family businesses face the challenge of diminishing interest from younger generations. Younger family members may not feel as drawn to running the business if they are not aware of the history and hard work that made it successful. When addressed early on, these issues can be worked out between current leadership and the next generation over time.
Guiding Principles
Remember to start family business transition planning as early as possible. Planning allows for enough time to work through conflict, place family members in the right roles, and preserve ownership interests if something unexpected happens.
Also, communicate goals openly. The current business owner and board members should be clear in sharing ideas, insights, and future plans for the business. This will allow the next generation to challenge and discuss these goals and work toward a shared vision that preserves the business’ legacy.
Best Practices for Successful Succession Planning
When forming a succession plan for increased success, some best practices should be followed. As decades pass, family businesses need to grow and adapt to a changing world. This means that family business leaders should be open to hearing from successors while also sharing years of knowledge and experience to help the business grow.
Do Not Commit to Succession Decisions Too Early
When formulating a succession plan, remember that roles and responsibilities can be flexible. What works for one family member now may not be the best fit in five years when they are ready to enter the business. Take your time to consider all of the factors within family business transition planning, and don’t commit to a decision too early. Ask other family members about their ideas and strengths before making final decisions.
Talk Openly About Plans for the Future
Open communication will foster trust within family businesses. Do not hide plans for ownership interests or business valuation. Younger generations will feel empowered to take on new roles if they are included in important conversations. Be open about future plans and their justification.
Work With a Family Business Adviser
Just because a succession plan is a family matter does not mean there are not ample resources to help with this process. A family business adviser is a trained professional who can help with business planning. Whether you need help finding the right roles for your family or you need help fostering open communication, count on the assistance of a family business adviser.
Letting the New Owner Take Over
When it is time for new leaders in family enterprises, there are a few considerations to remember. When the time comes to make a switch, the senior generation should remain involved and open to communication. Here are a few tips for family businesses to aid in this process.
- Be Patient – The day or week after ownership has transferred, remain involved so you can answer questions, provide feedback, and work through any issues. Set a positive tone right from the start and be willing and able to help out.
- Embrace Positive Changes – If your family has done the work for successful business succession planning, there should not be many surprises when ownership transfers. However, even changes you are expecting can feel jarring. Whether new ownership implements new technology, new structure, or another change, remain open to these ideas and ask questions to learn more.
- Remember the Details – Passing duties to new family business leaders is exciting, but remember to complete the necessary paperwork and smaller tasks. Factors such as taxes for business assets and expenses need to be addressed to help the next generation succeed as part of the family firm.
What to do When Taking Over a Family Business?
If you have been put in a new role as part of your family business succession, it can feel challenging to adapt to these responsibilities. All family businesses are different and will face unique challenges, but there are a few tips that can help you succeed.
- Work Within the Succession Plan—If your family has spent time forming a succession plan, work within this framework. Outlining this transition takes time and consideration, and there is no need to work from scratch if you already have a well-thought-out plan to guide you.
- Take Advice – Being part of a family business means having tons of resources at your disposal. Do not hesitate to engage with your family about business questions, financial concerns, marketing efforts, or any other factor that makes up your business. Count on the experience of previous generations to drive you toward success.
- Foster Quality Culture – As family business leaders, you are responsible for keeping a healthy company culture. This is especially true if you are stepping into the business owner role, as you want your employees to feel comfortable talking with you. Setting a high standard of communication makes family and non-family members feel valued.
- Do Not Discount Hard Work – Even if your responsibilities change, maintain high standards for yourself. Demonstrate that you are willing and able to successfully run the business and tackle the challenges that come with it.
Some call succession planning a “perennial problem,” meaning that the challenges a family endures while passing through a transition will persist into the next generation and generations to come. With proper succession planning and communication, next-generation family members can be set up for success and preserve the businesses’ interests.