Fewer than one-third of family businesses survive into the second generation, while only 13 percent make it to the third generation. But here are some tips for a successful family business succession and how you can beat the odds and help your business live on for generations to come!
Try to Keep it in the Family
The first and most important step is to keep your business within the family. If your kids are interested but don’t think they can contribute to the success of the company, you need to let them know that everyone has a place. Executive roles or decision-making positions might not be right for everyone, but you might be surprised by the unexpected talents your children have. Family businesses are also important for learning how to manage finances and commit to a larger business goal.
Host Fun Family Events
The success of your family is just as important as the success of your business. Family events like picnics and barbecues can help bring everyone together to learn about each other. Family business owners should make it a point to include family members as much as possible, especially if they’re just starting out in the business. Family events can also be a fun way to get your employees involved in your company, and give them some insight into how you run things.
The sooner you start the planning process the better
It’s never too soon to start preparing for succession. Ideally, a family business owner should draft and execute an in-depth plan for the next generation within five years of starting their company. The plan should include transition goals, strategies and budgeting to ensure the transfer of ownership. Family businesses that take early steps tend to be more successful than those that do not. The early steps to take should include: – Drafting an in-depth Family Business Succession Plan – Having Family Meetings on a Regular Basis – Asking each Family Member if they are interested in taking on responsibilities of the family business.
It’s best to create an advisory board
Create a Family Office Advisory Board that will help you on occasion and check in with semi-regularly, they can provide valuable insight into how you should approach Family Business Succession issues. These issues are often complex and might be too much to handle alone. Family business advisers can include accountants, attorneys, banks, other family business owners or consultants. The Family Office Advisory Board should meet at least twice a year to discuss how the transition is going and share concerns about any Family Business Succession issues.
Try to include family members in all discussions about succession
Creating your succession plan on your own and then simply announcing it to the rest of the family is a recipe for disaster. By discussing your thoughts with other members of the family, you’ll get an idea of who wants to be part of future operations and who might be interested in pursuing other options.
There may be a lot of pressure on you as a business owner to continue the work you started. It’s important to remember that for a succession to be successful, you need to involve and prepare the next generation. Family members will not simply inherit your business; they will have an opportunity to earn it. They’ll also gain experience in all aspects of the business early on so that when the time comes for them to take over the reins they’ll feel confident to do so.
Don’t let your feelings or preconceived expectations cloud your judgement
Owners of family businesses often choose to have their first-born child take over for them at a future time. However, are they really the best choice? Maybe your oldest son or daughter isn’t interested in taking over the family business. Maybe one of your other children is willing and ready-and has the skills required, too! If none of your children possess the requisite skills or desire, it may be best to sell the business to existing employees or an outside party.
Though it is important to consider what you can do for your family, remember to keep the business in mind as well. While giving everyone equal stakes might seem like a fair approach–since anyone involved with the business made an effort–it may create problems down the line. It may actually be fairer, and smarter, to give the largest share of the business to your successor and find other ways to compensate family members who are not involved in running the business.
Train your successor well
No matter how extensively you plan, your family business will fail without adequate training. You should train your successor in leading the business for two years before you step down to ensure a smooth transition. When you step down, there should be a book of instructions and procedures for your successor to follow. Family Business Succession may take some time and preparation–but it’s important to remember that the rewards make all of these steps worth taking!