One of the most critical and challenging issues to face family business is succession. That being said succession planning can be a great way to maximize opportunities in, ownership succession, management succession and leadership development. Family businesses are more about dynamics and structure. While most aspects of business still apply, family elements need to be taken into account to ensure smooth operation. At what point should senior members step aside? And has this been planned? There can be big differences in opinion between the senior members, the junior members and the needs of the business. My approach to family business succession is to, customize it to each client, as each situation is unique to that family.
In planning future ownership here are some of the areas commonly ignored by family business owners:
- Who will take over ownership? Will it be a spouse or one or more of the children? The successor(s) needs to be named, as well as the manager, the owner and other family roles.
- Dealing with the technicalities of ownership concession
- Planning without consulting family members
There are four key areas to any type or size of business that need to be addressed. These departments need to be assigned to appropriate members of a family, unless of course there is just one person who will inherit.
- Operations/Customer Service
This is a crucial element in succession. Leadership is said to account for 7%-14% of a business’ profitability. In small business, leadership development usually is done through, on the job training, but of course, can be supplemented with courses. Following find some items that should be developed and put in writing that will assist in leadership development.
- Establish a vision statement, goals and objectives, including the retirement goals and cash flow needs of the retiree and the goals of the next generation.
- Establish a decision making process, by identifying the process and a dispute resolution, this must be put in writing and communicated to family members.
- Create a transition plan, consider if the succession is to be a gift, a purchase or a combination. If it is to be a purchase, financial options need to be established as well as a timeline.