How to stay together while moving forward: Anticipating issues in succession planning for the family business
Transitioning a business is difficult at any time. When you add the complexity of family dynamics, it can add another thick and complicated layer. Past research has shown that approximately 30% of family-owned businesses will survive into the 2nd generation, 12% will survive into the third, and only 4% into the fourth, and so on.
A common situation is one where “dad” has built the family business from the ground up over the last 40 years, poured everything into it, and feels it is an integral part of who he is. He is building his legacy, and intends to pass it on to his “kids.” Let’s also assume that the kids want to be there, which isn’t always the case. Even with willing and educated parties, a transition can be very difficult and can fail if done without careful consideration and planning.
How do you avoid the traps of failure during transition between generations?
An important first step is acknowledging that help may be required to facilitate a successful transition. Unbiased external advisors can provide valuable experience to the process, having gone through this many times before. What is happening with your family has happened with many, and it can be crucial to leverage this experience from past successful transitions of family businesses between generations. It will make things invariably less difficult to navigate with trusted advisors helping you all along the way.
Who should those external advisors be?
Succession planning should involve accountants, lawyers, and financial planners to ensure that the transition is handled properly for legal, tax, and financial purposes. An additional advisor that should be considered is a business succession coach. A coach can add value by helping to facilitate the succession process for the family with the other advisors. Issues, as a result of family dynamics, will leak into the business regardless of even the best efforts to keep them separate. Mixing business and family can be very beneficial, but can also be fraught with tension, and be challenging more often than not. A coach can delve into these issues with creative solutions, based on experience.
An outside, unbiased perspective can be the voice of reason to provide foresight into common issues you may not have considered. For example, a family business with multiple members taking over during succession can be difficult for the business to support all at once. That is an issue that has the potential to be disastrous for both the family and the business, and should be addressed by everyone involved at the planning stage of succession. The person who built the business has a great overall sense of the business and can jump into any aspect to make decisions as required. It is common for the next generation to come into the business and learn only certain aspects (e.g., finance, marketing, etc.). They have not had the opportunity to develop the same overall knowledge of the business, and can’t participate independently in decision-making as easily. As a result, the full transition either doesn’t happen or puts additional stress on the next generation, which may result in the failure of the business.
Your trusted business advisors can help you foresee the pitfalls and help make appropriate plans to support the success of the family business to the next generation, while preventing the family from falling apart. Engage your group of advisors well in advance of putting the transition plan into action to ensure that the best strategy is in place for all, with the best chance for success.