Succession planning is important for any business, but it’s especially critical for family businesses. Unfortunately, many family business owners put off succession planning due to concerns about disrupting family relationships.
But this shouldn’t dissuade you from tackling the challenges involved in transferring your family business to the next generation. Continuing to procrastinate could lead to much bigger problems later when you’re ready to step aside but haven’t yet created a succession plan for your business.
Get an Early Start
So, when should you start the process of succession planning? Some experts recommend starting the process at least five years before you’re ready to transfer the business. This way, you’ll have time to train and work with the next generation of leadership while transitioning the relationships you have with clients and vendors to the new leaders.
Another common question has to do with assigning management responsibilities to children and other family members. This is where things can get touchy in a family business because family members’ feelings sometimes get hurt if they don’t think responsibilities have been assigned equally or fairly.
For example, John and his family own a manufacturing business and two of John’s children work in the company. His eldest daughter Mary has shown the most responsibility and initiative and possesses the strongest leadership capabilities, but his son Mark is very ambitious and a hard worker, too. Mark believes that he should be tapped to run the business after John steps aside, but John plans on naming Mary as the new CEO.
It’s critical that John discuss this with Mary and Mark long before he plans to retire. While Mark might disagree and even be hurt by the decision, it’s better to let him and Mary know well in advance than to make it a “surprise” announcement right before he steps aside. This will give John the opportunity to work closely with both of them during the years leading up to his retirement and find a role for Mark that suits his skills and abilities.
Assigning Roles
It’s also critical to think about the roles non-family employees will serve in the business after you leave. If there isn’t a family member who you believe is capable of running the business, you might have to choose a non-family employee as the new leader. This could result in hurt feelings among family members so you should discuss it openly and honestly with everyone who could be affected by the decision.
Once you have decided on the right roles for both family and non-family employees, you can start working closely with everyone to get them prepared for their new responsibilities. This is especially important for whoever you tap as the new CEO. For example, you should start introducing the future CEO to key contacts such as your largest clients and vendors.
Also get the future CEO involved in high-level decisions and start gradually increasing his or her executive responsibilities. This will help ensure that the leadership transition goes as smoothly and seamlessly as possible while also minimizing potential business disruptions during the transition phase.
Your Advisory Team
As you begin planning your family business succession, be sure to bring in a team of trusted advisors who can help you navigate these turbulent waters. This typically includes your banker, attorney, accountant and financial advisor, as well as your company’s board of directors. These professionals can bring an objective perspective to the process and share lessons and best practices they’ve learned working with other family businesses on succession plans.
As part of a family that owns a business, I enjoy working with clients who are facing many of the same challenges my family has faced. If you are interested in discussing your own family business succession plan, please call us at (973) 525-1000 or send an email to [email protected].
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