You’ve spent your entire life building your family business and it’s grown to the point that your children joined the team years ago. The future looks bright and you feel reassured that the business will thrive even after you step down. However, unless you take care to plan for succession from generation to generation, your dreams will potentially remain unfulfilled.
Managing the family business within the context of a succession plan is arguably one of the most challenging but most important things you will ever do for your business.
According to the Family Business Institute,
“88% of current family business owners believe the same family or families will control their business in five years, but succession statistics undermine this belief. Only about 30% of family and businesses survive into the second generation, 12% are still viable into the third generation, and only about 3% of all family businesses operate into the fourth generation or beyond.”
Recognizing this reality underscores the importance of solid succession planning.
Understanding the challenges of transition
There are certain factors that influence the likelihood of successful transition and an understanding of these can help offset and mitigate any barriers or obstacles.
Williams and Presser identified four key variables that often lead to a failed transition:
- Breakdown of communication and trust within the family
- The absence of a clear vision to align family members
- Heirs that have been inadequately prepared for leadership roles
- A failure by advisors to properly interpret governance, taxation and wealth preservation issues
Once these risk factors have been identified, the next step is to implement best practices that will guard against them.
The following recommendations will mitigate the risks presented by the variables described above.
Communicate a clear vision and mission
Most entrepreneurs dream of how they would like to see their business grow. However, family members are not always necessarily on board with this vision. A successful business requires buy-in from all stakeholder groups (employees, board members, advisors and owners), and in a family-owned business, the most important group may well be family members.
Make sure you communicate your vision to family stakeholders. Take time to invest them in your dream, taking into consideration their needs, expectations and interests. Then, map everything out comprehensively so that stakeholders understand and can support your vision going forward.
Prepare the next generation
Sharing your vision isn’t enough. While you have demonstrated the skills and spirit to grow your company, your family members may not share those skills or that frame of mind.
Start training family members as soon as they are poised for positions of leadership. Bring them up to speed quickly and aid them in anticipating challenges so that they will be able to course correct as needed. The more time and resources you allocate to training, the better prepared your family will be when the time comes for transition.
Identify and recruit a competent transition management team
Saying you want something done does not necessarily mean that it will get done. And you shouldn’t rely just on your family members to implement your vision.
In fact, you absolutely should recruit professionals outside of your family to help ensure that your wishes are realized. Accountants, lawyers, financial advisors and insurance professionals should all be part of the team. When you transition your business to the next generation, there are many implications to which all of these professionals can speak.
As you think about what will happen to your family business when you are ready to step down, you want to make sure that you share your vision, prepare family members, address obstacles, and put the right people in place to support your succession plan.
At Miller Bernstein, we help clients to transition their family business all the time. If you are struggling with some of these issues, and would like professional advice, contact us for a free consultation.