Planning for succession in a family business is one of the most difficult and uncomfortable things to get started on.
Unfortunately for business owners, it is also one of the most crucial.
At stake is of course the business itself – many don’t last beyond two generations, much less three.
But improper succession planning can also cause the family unit itself to fragment, especially after the patriarch passes on.
Succession planning is as much about aligning all other members of the family towards a common goal as it is to find a new head of the company.
To avoid all these unpleasantness, it may be better to confront the perceived unpleasantness of discussing a future without the patriarch around.
Here are some tips I’d always give to our bank’s clients on succession planning.
1. Start early
Some business owners like to put off succession planning because of any of a combination of these factors:
- I’m still young and healthy
- My children are still young
- My children do not seem keen to take over
- My family knows my wishes - I don't need to state it explicitly
The harsh reality of life is that no one can say with any degree of certainty when their time is up.
Apart from death, a sudden stroke or heart attack or an accident could also leave one incapable of running a company any longer.
So the discussion on succession should happen when the patriarch is still fit and healthy, not when he is getting on in years.
And when is a good time to talk over this with your spouse and children?
It may be good to start this conversation from as early as their teens.
If the children are keen on the family business, they can focus their next steps in life – such as which university to go to, what course to take and so on – which will help them in their future role within the company.
It also gives the next generation time to warm up to the idea of taking over the business. While many may initially react negatively, some may take a while to look at it positively or come around to the idea.
Many business owners fret starting this discussion because they dread hearing the truth from their children that they are not interested in taking over.
But it is better to know the truth early so that the patriarch can think of alternatives – either a more distant relative, or even hiring a non-family CEO to run things while his offsprings remain on the board.
Sometimes, hiring an external party to run the business can lead to better financial results as not all of the patriarch’s children may be suited to lead the business.
Either way, having that conversation to make sure everyone is on the same page is crucial.
Many business owners think their children are mind-readers. People seldom are and it is always better to make things explicitly clear, especially if they may be potentially sensitive.
It can be extremely painful for one of the children to find out that he is not the one his father wants to take over the business when he had thought he would be the one.
Having that discussion early also allows everyone to know where they stand and what plans the patriarch has for them. After all, not everyone needs to be the CEO and can contribute to the family business in other ways.
2. Keep an open mind
Succession planning isn’t just what the patriarch wants. It is also about what his descendants want.
For example, he may have someone in mind to take over, but that child may not be keen. Instead, another of the children may be more interested.
At the same time, the child who is keen may lack certain attributes to make a good leader.
In such cases, the patriarch can consider putting in place the child who is interested instead of forcing the uninterested one to take over.
What he can do is to ensure the child who is going to take over has all it takes to prepare him to become a good CEO.
This could be through enrolling him in certain courses or training, mentoring him closely, or even by hiring a deputy who can complement him and is strong at what the new CEO lacks in..
3. Plan to develop the next generation’s skills and experience
Try to get the person who would be taking over the business to get involved early.
Some families believe that the next generation should start out right from the bottom – to earn their stripes.
For example, the Warburton family, a fifth-generation bakery chain in the UK, makes its next generation toil in the bakeries.
There is also value in making the would-be successors rotate through various roles and departments so that they become familiar with all aspects of the business.
Some believe that their children start first start working in other companies in order to gain different experiences which can give them different insights and ideas on how they can adapt some of these practices to the family business.
While there is no right or wrong plan and different families would choose different ways of doing things, it is important to ensure that the successor be given time and the right training to come into his own.
4. Know when to let go
Some business owners, especially if they had been the ones who started the company, like to continue working even though they are past retirement age. They cannot imagine giving up being involved in the business till they are too weak to do so.
But it is important to spare a thought for the one taking over – he may not appreciate the extra pressure of someone watching over him as he takes over the business.
Learn to let go and trust the person you picked to do the job.
This also shows staff in the company that you absolutely trust him to do the job and they will rally behind him.
The next generation leader may also feel stifled if the patriarch is still actively involved in the running of the business.
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