Planning for the succession of a family-owned business takes organization and communication, as this process requires the vital exchange of leadership duties. Since the COVID-19 pandemic and subsequent uncertainty, family businesses have seen 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.
There is a multitude of factors that constitute the succession planning process. To address these factors and work through complications, it is important to understand the benefits, challenges, and principles of succession planning.
Succession Planning: A “Perennial Problem”
Some call succession planning a “perennial problem,” meaning that the challenges a family endure 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 business’ interests.
One of the key benefits 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 that the roles different family members will assume are clear to avoid confusion or conflict.
Consider if something unexpected happens, and one family member in charge of finances suddenly decides to take a different path. Proper family business transition planning can smoothly address this problem. Since the details of the business operations are transparent, another family member could step into this role and assume responsibility. This will allow the family business to remain stable during an uncertain time and protect the interests of the family firm.
Another benefit of succession planning is that children and grandchildren will have time to learn about what it takes to run the business. This planning period allots for training and the opportunity to work through challenges with guidance from the senior generation. This also allows younger generations to explore their future role and ask questions or make changes.
Many family businesses employ workers outside of the family, which is a key challenge for family business transition planning. Employees who have been in the business for decades may feel alarmed at the change in leadership or may feel overlooked because they are outside of the family. Senior generations should address this challenge by fostering quality relationships with all employees that show them they are valued. Transparency is also essential, as this communicates to employees that they are not left in the dark during a transition process. If they know the general succession plan, they are less likely to feel shocked or disarmed when next-generation family members step up.
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.
There are a few guiding principles of proper business succession planning that are helpful to keep in mind. 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, remember to 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.
As mentioned, one of the challenges in a family business succession plan is placing the right family members in the right roles. To make this process smoother, talk about these intended roles early on and have a plan for the next generation. This will keep certain members from feeling left out of the picture or forgotten when the time comes to transition the business.
Best Practices for Successful Succession Planning
There are some best practices to follow when forming a succession plan for increased success. These practices rely on the principles of open communication and a willingness to hear new ideas. 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. Hear from 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 leave plans for ownership interests or business valuation in the shadows. 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, that does not mean there are not ample resources to help with this process. A family business adviser is a trained professional who can help in business succession planning. Whether you need help finding the right roles for your family or you need help in fostering open communication, count on the assistance of a family business adviser.
Letting the New Owner Take Over
When it is time for a new leader in the family firm, there are a few considerations to remember during this process. Family business transition planning involves plenty of preparation, so when the time comes to make a switch, do not forget that 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, the work is not over. If you are part of the former family business owners who have passed the torch, remain involved, especially at the beginning, so you can answer questions, provide feedback, and work through any issues. It is essential to set a positive tone right from the start, and being willing and able to help out is a great way to do so.
- Embrace Positive Changes – If your family has done the work for successful business succession planning, there should not be too many surprises when ownership transfers. However, even changes you are expecting can feel jarring. Remember that positive change is good and moves the business forward. 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 off duties to new family business leaders is an exciting time, but remember to complete all 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 at first 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. It takes time and consideration to outline this transition, and there is no need for you 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. Do not discount the importance of showing employees they are valued. 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 at your company.
- Do Not Discount Hard Work – Even if your responsibilities change, do not forget to maintain high standards for yourself. You want to demonstrate that you are willing and able to successfully run the business and tackle the challenges that come with it. Do not forget to work just as hard as those around you and maintain your credibility.
How do you plan a succession for a family business?
There are many steps you can take for successful family business transition planning. You can start by defining your company’s values and goals and form a plan that aligns with these. Remember to also work toward placing family members in the right positions in the chain of succession. Once these plans are solidified, talk with non-family members in your business to keep them aware of plans and help alleviate conflict.
What factors should be considered when a succession plan is developed for a family business?
Consider how the market you are in will change in the coming years when developing a succession plan. Map out possible financial trends and economic conditions. Of course, some of these changes are unpredictable, which is why it is important to engage your family in the business plan and responsibilities so you can easily adjust when something unforeseen happens.
What is a family business plan?
A family business plan is a strategy for future business growth and development that incorporates family members into a line of succession. Family business plans may include economic considerations, technology adaptations, and competitor analysis.
What is the family business in succession?
Family business succession is the process of transferring ownership and leadership from one generation to the next. Depending on the size and scale of the business, this may involve just a few immediate family members or extended family. This process consists of delegating roles, mapping out business plans, and communicating between family members.