When your business has spanned generations of family ownership, you’ll likely want to keep the tradition for many generations to come. To preserve your family’s ownership, you’ll want to make sure there’s a succession plan in place. What is succession planning? It’s a broad field of expertise that you’ll want to tap into to keep your business growing.
Even if you’re not a succession planning expert, there are some actions you can take now to ensure your business stays in the family. Take these steps now to start establishing your succession plan.
1. Know the parties involved
Before getting started with your succession plan, you need to know what parties will be involved.
Don’t assume anything about the next generation, especially that they would want to continue running your business. If you start working on a succession plan with that presumption, you’ll have no backup plan when the time comes for them to take over.
Get to know the individuals that you want to include in your succession plan. Understand their interests (running the business as it is, changing the business, or taking no part in it), and their strengths. These individuals might include your spouse, children, and relatives as well as proxies to represent your family and outside parties. If the legal structure for your business is a partnership, the number of parties to consider multiplies for every additional partner involved.
2. Know your goals
Once you know who will be involved in the succession, you need to be clear about exactly what you want. Some of the most common goals are:
- Legacy: If you’re motivated by legacy, then you likely have a strong interest in the business continuing after your departure, making sure your children (or other family members) are the ones running the business. This is a simple concept but can be very difficult to execute, especially if your family members are not interested in leading the next phase of your business.
- Security: Perhaps you started your business so that it could continue to support your family in the future, even without you at the helm. This doesn’t mean that your business needs to be managed by a family member. It does require that the business is set up in a way that the family directly benefits from it. This includes measures to allow family members to have a say in some key, high-level decisions.
- Evolution: If you started your business to eventually act as a platform for your family members to achieve their own dreams, you’ll need to be ready to see it change. For example, a family member might significantly change your business’s practices once they’re in the top leadership position.
- Cessation: As the business owner, you could also intentionally plan for your family to not be associated with the business after your departure. You could also plan to have the business dissolve when you retire. If this is the case, you’ll still need to make a succession plan to account for your intentions.
Regardless of your motivations, it’s important to establish a mission. This will communicate how you would like to see the relationship between your family and your business continue in the future. It also sets your vision for the values that you want both the family and the business to uphold. This could include values pertaining to your family’s bond, the impact of the business on the world, or even environmental values.
3. Understand the process
Succession planning doesn’t happen overnight. It’s a years-long process that involves advisors, lawyers, and the family members you want to be involved in your succession. Talk with your family members to understand their intentions and share your own. Establish an agreement that’s as clear as possible.
Your goal should be to transition the management of your business to its new leaders gradually, typically over the course of at least two years. This is enough time for a smooth transition and to educate the new leadership.
What’s involved in successfully transitioning to new leadership roles? It’s important to include benchmarking and accountability. Once your successors are identified and willing to proceed, they need to understand what achievements and goals they must fulfill to advance to the next step. If your successors aren’t meeting their benchmarks, then you’ll need to consider alternative leaders and options in your succession plan.
4. Maintain flexibility
Succession plans establish rules and procedures for the long term, and as we know just about anything can change. That’s why it’s important to build in flexibility. Here are a few situations you might need to deal with:
- Maintaining legacy ownership with uninvolved family members. Sometimes a family member who originally planned to take over the business changes their mind. If you still want to keep management in the hands of your family, you’ll need to find a way to put interim management in place until another family member is ready to take over.
- Family members who don’t live up to their commitments. Some family members don’t step up to meet the performance and responsibility expectations they inherit. Others might have values that differ substantially from the ones you set forth in your mission. Your family needs to have a formalized plan to deal with situations like this, including alternates or collective management.
5. Know the family business management models
There are a few different structures you can choose from when setting up management for your family business. Here are a few models to consider:
Foundation:
Many families use a foundation to effectively manage their businesses. A foundation is an additional entity that handles the ownership of the family business and/or the family’s wealth. By setting up a foundation, your family can manage its ownership following detailed rules for how money and responsibilities are distributed through each member of the family.
Family council:
The family council is a subgroup of the whole family. This group is designated to make decisions related to the business and how the business intersects with the life of the family.
Family assembly:
A family assembly is a complement to a family council. Whereas the family council makes in-depth decisions, the family assembly involves all members of the family and meets to discuss big changes to the family business. This includes changes to the mission, closing the business, or setting up the members of the family council.
Planning is the most important part
The act of planning is the most important element of succession. There are a lot more people involved in the family’s relationship with the business than you might think and making sure that you have the rules in place and well-communicated far in advance can help to avoid a myriad of problems that might come up.
