Family-owned businesses face unique challenges during every phase of the business life cycle. They grow with their founders’ energy, sacrifice and commitment. As the company grows, there will come a time when the founder must step down and let someone else take the reins.
That’s where family-owned businesses get tricky. In many cases, the owner has a unique sense of control over the business, having built it from the ground up.
The truth is many family-owned businesses fail to survive beyond the founding generation.
There are some best practices for continuing your family-owned business success while preserving your legacy.
Make a Succession Plan
It’s an old adage – Be Prepared. It applies to all of your business decisions, particularly this one.
Making a succession plan is the single most important issue in preserving the legacy of your family-owned business. Without a detailed succession plan, the founder could be forced into alternative exit strategies.
Rather than pass on to the next generation of family management, many family businesses have considered alternate exits, such as:
- Selling to management partners
- Selling to employees
- Selling to outside parties
- Closing the doors entirely
It is important to begin early developing a plan that tackles issues like ownership structures and skills transfers.
Start thinking about it preferably five years before the transition date. Develop a plan to tackle issues like ownership structures, skills transfers and family involvement.
Specify the Exit Strategy
It sounds obvious, but it’s not always that easy. Often the founder has a plan in mind but never really shares the vision.
Sit down and specify the exit strategy. If succession is the plan, make it clear where this is headed.
In some companies, the successor is clear. There is a family member who has grown up with the business, held numerous roles, and is in a solid position to take the reins. In other situations, a successor may have to be selected and trained.
Secure the Finances
Whether to use family money or third-party capital can be a real concern, so it is imperative that the family have access to funding options that protect it from loss of assets.
Is the business part of the leader’s retirement plan? If so, the leader’s retirement plan can have major consequences for the future of the company. Accumulating assets outside the family-owned business is critical to a successful retirement strategy.
Consider Ownership Structure
A successful intergenerational transfer will require an appropriate structure to support your business objectives.
Make sure you review and understand various ownership structures – involving outside partners, creating management-ownership structure or even going public.
Focus on Good Governance
Remember that there are many ways to retain your family legacy, even outside of the business structure, ownership or strategic focus. There are ways to guide the relationship between the family, the owners and the organization. Be sure to considers tools such as:
- Family Council – a formal, semi-formal or informal arrangement in which family members provide input on business matters to ensure family input and legacy
- Family Constitution – an overarching document, set of principles and commitment which ensures that the family legacy and values will be an ongoing part of the organization
These tools can add tremendous value to the evolving ownership structure while allowing the company to retain the family influence.
Get Ready for the Effect on Employees
Every family-owned business must limit the potential for conflict between family and non-family employees by adopting clear guidelines for employee expectations, qualifications, remuneration and deliverables. Use clear policies, effective communication and mediation processes to manage any potential conflicts.
Your Family-Owned Business Can Be Your Legacy
To the business founder: you built it, endured the sacrifice and obstacles, and made it a success. You exemplify the qualities that make our economy thrive. But it’s time to give the reins to someone else.
Too many family-owned businesses stumble at this point. But with a thoughtful, proactive, and detailed succession plan, your family-owned business can continue as your legacy.