The earliest businesses were farms or small shops that were passed down between generations, so it’s no surprise that the majority of today’s businesses are family-owned and operated.
As businesses get handed down from generation to generation, how do they sustain steady growth and ensure there is a smooth transition from parent to child?
Planning for succession is a large component of a strong family business, and yet more than half of family businesses do not have a succession plan in place, resulting in only a third of these businesses being transferred to the second generation.
Developing a succession plan with a timeline for relinquishing control of the business not only keeps the family business thriving, but it also helps to reduce the effects of an emergency.
What is a Succession Plan?
A succession plan is used by family-owned enterprises to map out who will take over the business when the owner eventually exits due to retirement or death.
The senior generation creates a clear and scheduled plan to facilitate the transition of the younger generation into their role by mentoring them into a gradual takeover. A smooth and streamlined transfer can help ensure the business remains viable and effective as it switches hands to new management.
Here are the steps for carrying out the succession process, along with some planning tips to make succession easier for your family.
Mentor the Next Generation Early
Starting at a young age, include your children in the business.
Familiarize them with how the business works by assigning them various jobs to complete. As they start to get older, give them more responsibility at a manageable rate, and mentor them on what they need to know so when the time comes for you to retire and hand off control, they will be comfortable taking the reins and moving the business forward.
Select Who Will Take Over the Business
If you have more than one child, who does the business go to? This can be a complicated decision if there are several children willing to succeed their parents as the owner.
Anticipate this decision early and try to discuss the topic of succession openly with your children. You may find that one is not willing to continue the business, while the other is completely invested in the family’s enterprise.
Plan out who will be next in line, and when the transition is expected to take place. Depending on your family situation, siblings may be able to work together with no issues. Alternatively, if disputes are likely to arise, it’s best to sort out one individual who is capable of taking the lead.
What if none of your children are interested in taking over the family business? Are you willing to train an outside party for your succession? Are any of your employees capable of taking over? These questions will need to be answered if you are faced with the conundrum of not having a blood-relative to handoff the business to when it’s your time to exit.
Slowly Make the Transition
Set out an agenda for your exit, and give yourself plenty of time to groom your successor. Take the transition slowly. Educate them and gradually pass off responsibilities one-by-one so they can get the feel for their new position. Inform customers, employees, and other business connections of the change and give your child time to build relationships with these people.
As the senior generation, it is up to you to lead the succession process and for the younger generation to be willing to step up and learn the tricks of the trade.
The slow transition is as much for you as it is for them. You can ease yourself out of the spotlight as your child becomes increasingly hands-on.
Handing Over Control
When the time comes for you to retire and pass over the business entirely, your preparedness should come in handy as you withdraw control. That doesn’t mean it will be easy to let the business go, but it is necessary if you want your business to continue growing.
Have trust in your successor that he or she will have the skills to run the business, and most importantly, lead it into the future, which could include adapting to new technology, improving efficiencies, or introducing new ideas to stay competitive.
You may wish to stay on as an advisor for a length of time during which you are available to answer questions while everyone gets adjusted to the new management.
Maintain Family Balance
Business can affect family relationships. The key to keeping a family unified is to clearly communicate with them and enlist their support for your decisions.
Try to separate business from family matters in order to preserve your family ties. Be aware that there might be a few challenges along the way, and resolve to approach any conflicts in a respectful way.
It’s hard not to let emotions interfere with business when the two are closely related, but you will need to strike a balance by being both professional and sensitive when it comes to family issues.
Some tips for managing family feuds:
- Develop procedures for dealing with conflicts (third party mediator or family council).
- Treat all family members fairly (do not give special treatment to any one member).
- Exercise open communication and make sure everyone is equally informed.
- Create a fair way of evaluating employee performance, and issuing wages, raises, or holidays.
- Outline each family member’s duties to the business and hold them responsible for their mistakes.
Preserving the Family Business
You may have heard of Heinz, Walmart, Ford Motor Company, Cargill, Comcast, and Johnson & Johnson, which are all family businesses that became widely successful.
Carrying on the family business can be a source of great pride for successors. Many have a passionate commitment and long-term investment in what their family has built, and will work incredibly hard to preserve the family name.
As the owner of a family business, prepare your company for sustained growth by creating a succession plan to help your business transition seamlessly to the next generation. Encourage your child’s development as a leader and place trust in their ability to take the business into the future—because eventually they will be passing down your teachings to their own son or daughter.