The Make or Break for Your Family Business
Succession planning is one of the most intense issues we see facing our clients at MBC. It can also be one of the most divisive within a family business and the most critical in future family relations.
Getting your succession planning right can mean the difference between happy family gatherings and families blown apart through painful disagreements. These conflicts can disrupt the family for generations to come and are highly stressful for everyone involved.
Having a good succession plan in a family business is more important than planning for the next three months of operation, but most businesses don’t give it the same sense of urgency.
Nobody likes to think about succession. It is inevitable that one day those who have created a family business, carried it on from generations previous, or built it up to what it is today, will leave the business.
It could be in ten years or it could be next week. We don’t always know how it will happen or when, but it’s important that there is a plan in-place for that day.
What Does a Proactive Succession Plan Look Like?
A good succession plan will:
- Help your business transition smoothly to the new owner and continue to thrive in the hands of the next generation.
- Be achievable, have a realistic timetable and measurable milestones along the way.
- Maximise the value of your business and help it to meet future needs through careful planning well ahead of time.
- Ensure that you have the funds you need to retire.
- Reduce the impact of the loss of an owner or major team member.
- Help buffer the company from dramatic changes in business circumstances.
- Prepare targeted individuals for future advancement.
- Maintain family connection and harmony for all family members.
Top Tips for Successful Succession in Your Family Business
Every family business is different, but everyone can apply the following universal keys to good succession planning:
1. Plan for the unexpected as much as for the expected. Give succession planning a sense of urgency. It might not happen for years to come, but the reality is that you don’t always know when the time will come. Ignoring succession planning until it is too late can lead to major problems down the road. Many business advisers tell budding entrepreneurs to build an exit strategy right into their business plan.
2. Succession is a process – not a one-off event. The major influences on succession all require a lot of planning and preparation. Taking care of the legal side of succession alone (e.g. tax issues, business timing issues, retirement, estate planning, equity transfers) is a long-term process. Handling the emotional and personal aspects of succession planning takes careful consideration and time for everyone to digest, deliberate and seek further advice.
3. Involve the entire family. Opening a dialogue among family members is the best way to begin the process of a successful succession plan - one where close attention is paid to the personal feelings, ambitions and goals of everyone concerned. Chuck the kettle on, have an informal chat, let everyone digest that succession planning is on the radar, and make a date to revisit the discussion in the future. A good succession planning process is reliant on involving and communicating with your family members no matter which generation they belong to or their immediate contributions to the business.
4. Always be open, honest and transparent. There is nothing that will breed discontent and distrust in the succession process more than secretive behaviour or exclusion from the process. Most people get a sense of when they are not being given the full picture. Honesty can be the only policy when it comes to a contented, successful family businesses.
5. Be aware of acting out of fear - Ulterior motives and acting out of fear (e.g. fear of losing out financially or losing control of the business) can be common reactions in stressful situations of change and not always helpful emotions to have in the process. Trying to alleviate everyone’s fears in the process should be a priority in creating a workable solution.
6. Have an unblinkered clear vision. Have a clear idea of what you would like to see come out of the process of succession, but also be open and flexible enough to allow the integration of what others want and need out of the process. Try your best to not only see things from your perspective. Put yourself in the shoes of the other parties involved. Attempt to see where they are coming from and validate their needs in the process.
7. Be professional and ethical. Holding people to ransom over your demands and wants in the succession process, bullying behaviour, tantrum throwing, being greedy or acting without concern for everyone involved is not professional or ethical. This is the quickest way to breakdown and weaken the process of succession along with the relationships within it.
8. Remember you are a business, but most importantly you are a family! Maintaining the family unit is paramount to the successful transition of succession in family enterprises. Asses how succession affects your family unit, especially all stakeholder whether they’re in the business or not, retiring parents, or partners.
Why do so many family businesses ignore or put off succession planning?
Many people underestimate how extensive succession planning is. To think that you can attend a succession planning meeting, bounce a few ideas around and come away with a solid plan to put in place is definitely underthinking the process.
One reason so many enterprises ignore succession planning is that it can be uncomfortable. Family conflicts occur even in the healthiest businesses, and the succession process is full of potential pitfalls and roadblocks unless you know what you are doing.
It's likely you will need someone to guide you through the complexities. Someone whose expertise and impartiality help build trust and smooth conflict between members.
Make an obligation-free appointment with MBC today to look at the options that will be best for you and the future of your family business. Call our office today on 02 6362 0988.