Although the goal of most family-owned businesses is to pass the business down to the next generation, only about 35 percent of them do so successfully. Just 20 percent make it on to the third generation. Even with these statistics, there is no reason to get discouraged if your goal is to pass down your business. There are actions you can take now that will put your family-owned business in the category of successful transitions to the future generation.
View transition as a process: Early planning for succession
Family-owned business succession is not successfully achieved simply by writing a will leaving your business to your children. It should be an ongoing process beginning even with your original business plan. It then needs to be reviewed periodically and updated when needed. There may be changes in the goals of the business. The addition of family members through marriage may affect the plan as will a change in the abilities or the health of family members involved in the plan.
Communication among potential successors
You have likely heard the three most important considerations in real estate are location, location, location. Apply this adage to business succession and the three most important considerations translate to communication, communication, communication. The following areas may become contentious unless discussed frequently among all involved while allowing for modification of the succession plan when necessary.
- What is the vision for the company?
- What are the specific goals for the future?
- What are the expectations of each family member?
- What role will each family member play after the transition?
- How will the next leader of the business be identified?
- Are there some family members who do not want to be involved?
- Are there non-family member stockholders or employees who will be affected by the plan?
- Who will be included in the most intricate parts of the planning process?
- How will conflicts between successors or potential successors be resolved?
- How will extended family members be involved or affected, for example, will there be a role for your children’s spouses?
- Who should be members of a transition team?
- What, if any, will be the role in the business of the person who is stepping down?
Formal family meetings should be held periodically where all involved feel free to express their views. If there is significant conflict, a communications expert may be called in to assist. If all involved understand the goals of the company, how the succession plan will be implemented and what each individual’s role will be after the succession plan is in place, the smoother and more successful the succession will be.
Put the succession plan in writing
When the questions have been answered and the goals determined, the specific succession plan must be put in writing. But, as some experts have said, you do not shove the plan in a drawer somewhereand forget about it. It should be an evolving document that is updated as the business evolves and new challenges arise.