According to a Harvard Business School Study, 70 percent of businesses fail or are sold before the second generation gets a chance to take over. Family businesses face many challenges. They must keep up with the changing times to keep the service or product current and in demand as well as deal with family relationships and conflicting opinions.
Not all family members will have the same vison for the company so it is important to have a clear plan in place when handing over a business to the next generation. Like all businesses, a business plan should be firmly in place but the focus of this plan should be on how the family would continue running the business should the current director choose to retire or in the event of unfortunate circumstances. The family members who will continue the business must have a clear outline of the vison and goals for the company’s future that aligns with the current model.
Succession planning can be challenging for any founder but family hand overs must overcome differences of opinion, disagreements over succession, favouritism and assets. There is a difficult period of transition as the parents may not want to let go and the next generation have their own idea of how they would like to run the business. If you do not have a succession plan or if you don’t plan for management succession, problems can arise. Current family members must be fully aware of their responsibilities within the company and know who will step into what role. Once this is decided, there should be proper mentorship to confidently continue the legacy.
Working with your family members can be testing and difficult at times. It is important to make clear boundaries between work and home and how you will deal with arising conflicts. Decisions should be based on what is best for the business and not the individual. Conflicts should not be emotionally charged or taken personally.
Here are 10 tips to encourage a smooth transition when handing down a family business.
1. Establish a family charter from the outset and talk about family issues before they become a crisis.
2. Communicate constantly and regularly with formal meetings and in writing
3. Succession planning can never start soon enough and can take up to five years to properly integrate a new family owner/CEO
4. Ensure family members have sufficient liquidity to exit the business
5. Have a strategic plan in place that involves securing adequate capital for growth and allow for family members to retire
6. Do not allow a family member to progress up the business to senior positions if they don't have the capabilities
7. Consider an outside person to take over as CEO if there is no one suitable within the family to run the business
8. Ensure that family and business values are similar
9. Make sure roles are clearly defined
10. Have a clear and defined exit strategy and stick with it.
To improve the chances of success, it is essential for the involved parties to share the same and best interests for the company.
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