Succession planning is the process of identifying and training new leaders to replace old leaders when they retire, leave, or pass away. Because succession planning for family businesses can be a little more complex due to the personal element involved, it should begin as early as possible. When succession planning is made a priority, a business is able to define and train for key roles within the company, while being able to successfully pass on ownership from one generation to the next.
Why Families Perform Succession Planning
If you have a business that you would like to keep within the family, it is important to begin succession planning with the guidance of other family members and possibly a business consultant skilled in this area. There are many reasons business owners choose to perform succession planning. Many families work hard to ensure that their family business remains in their family throughout time. In addition, maintaining a family business also helps ensure financial stability for generations of families, indefinitely.
Succession Planning Tips for Family Businesses
Approximately 90 percent of businesses in the U.S. are family-controlled or owned, according to the U.S. Bureau of the Census. However, sooner or later a leader in a business will want to retire. When this time comes, it is important for the family to be prepared with a trained successor. To get started, here are a few succession planning tips for families.
1. Start Family Business Succession Planning Early
Succession planning involves making sure that all critical roles within a company are properly filled with the right talent. When you plan ahead, your workforce will remain filled even if someone decides to leave or retire. Families should begin succession planning as soon as possible, ideally when a new person is hired. By succession planning early on, you can avoid empty leadership positions following unexpected events. For example, your original succession plan could be annulled if the person decides that they no longer want to run the company or receives another offer that they do not want to turn down.
2. Involve the Family in Succession Planning Discussions
When dealing with a family business, it is important to include all family members involved in decision-making. Not everyone in the family may have the same vision for the future of the business. By including them in these discussions, you can clear the air and help prevent ill feelings between family members. Give each family member a chance to contribute to the conversation and listen carefully to their advice or concerns. In addition, be respectful to family members who do not wish to be part of the family business as some individuals may want to go in a different direction career-wise.
3. Make Decisions Based on Business and Not Personal Feelings
Mixing business with personal feelings does not often fare well. According to the Family Business Resource Center, just 30 percent of family-owned businesses are able to successfully pass from the first generation to the next. In addition, just 12 percent successfully pass their family business from the second generation to the third. While it is important to plan around emotional issues to minimize conflict, personal feelings should not form the basis of major decisions within a company. Instead, family members should focus on making the best decisions based on business logic.
4. Eliminate the Thought of Everyone Having Equal Shares
When it comes to family estate planning, it often makes sense to split everything equally between siblings. However, this concept does not work with family businesses. If one sibling chooses to devote his or her entire career to the business while another sibling chooses a different career path, the sibling heavily involved in the family business should fairly take all or most of the profits from the business. However, this does not mean that the siblings not involved in the family business should lose out. In cases like this, the sibling involved in the family business should find a way to buy out the others.
5. Provide Training After Deciding Who the Successors Will Be
If you have a successor in mind for the future of your business, provide training early on in their career. Your business will have a better chance of remaining successful if the successor has had training and has acquired knowledge on how to run the business without help. This training does not have to happen all at once but should be provided consistently over time until the successor is able to operate the business on his or her own. Ideally, training should begin at least one to two years before the business owner decides to leave or retire.
6. Seek Advice from a Reliable Outside Source
While you may feel more comfortable seeking advice from people within your own family or group of friends, acquiring outside help from people not in your family can also be beneficial. Experienced accountants, business lawyers, and financial advisors can be an incredible help for your family business. These professionals all have special skills that can help you work through various legal and financial problems that your company may run into. It is also wise to consult with these professionals when going through the succession planning process to ensure that you are on the right track. They can also be helpful if you choose to close or sell your business in the future.
Learn More About Succession Planning
Succession planning is an effective way to avoid conflict and encourage a smooth transition of a family business from one generation to the next. The health and longevity of any family business is highly dependent on how you plan for your business’s future and without careful succession planning, everything that you and your family have worked so hard for could ultimately fail. Only through successful succession planning can you create an enduring legacy for your children, their children, and so forth. For more information about succession planning for family businesses, contact the business consultants at BBG Broker.