5 principles for effective family business succession planning

Many entrepreneurs dream of handing down a family business and seeing the business they started thriving in the hands of the next generation.

But statistics show that family business succession can be riddled with challenges.

Family business are even more complicated due to the overlap of business and family:

• Blurred boundaries between ownership & management – which often leads to conflict
• Lack of Corporate Governance codes & principles
• Emotions influencing strategic decision making – succession in particular

In our years of experience helping companies with succession and succession planning, we’ve uncovered several proven principles that make the process smoother.

Here are five principles for effective family business succession planning.

1. Think long term – make succession planning part of your business strategy

The four plans that are critical for every company are these: Strategic, Financial, Operations, and Succession.

In our experience, one that is most commonly missing or incomplete is the Succession plan.

The most successful family businesses take time to plan for every stage of the succession process years ahead of the set transition timeline.

The longest-lived companies – those that have lasted more than 100 years – consider “succession” to be a key part of their long-term strategy.

2. Decide – will you be a business-first family or a family-first business?

When you adopt the philosophy of being a business-first family, you put the best interests of the business ahead of the individual family members when it comes to business situations like succession planning.

The business-first family philosophy predicts a longer life-cycle than a family-first business philosophy.

Taking this approach can also make succession planning for family businesses far more straightforward by determining succession based on whether the heirs are qualified to lead and increase the value of the family business.

Because everyone has already agreed to this philosophy, that decision and commitment makes it much easier to have the confidence and courage to have these tough conversations.

3. Consider succession in terms of leadership, ownership, and wealth

Many people think about succession in terms of handing over operational management of the business. That’s only part of the picture of succession.

There are actually 3 conversations happening at once with regards to succession:

• Leadership
• Ownership
• Wealth

As a family business succession consultant, I advise my clients to separate these into 3 distinct issues for discussion but consider them together to ensure that the 3 decisions are not in conflict.

These discussions create an environment that helps discern the difference between being equal and being equitable. It’s impossible to be equal with generational succession of wealth, leadership, and ownership – but a succession plan can always be equitable.

4. Train, prepare, and support your successors

Successful succession entails a transitional process of having one generation develop the necessary leadership skills and experience, while the other gets more comfortable with letting go of the reins.

Preparing and supporting successors for a successful transition may look like this:

• Requiring the next generation to get relevant education and outside experience first, if they want to lead the family business
• Involving the future generation at the board level, to gain experience and knowledge, and to participate in decision-making
• Hiring outside management to run the company, while the family retains ownership
• Strengthening governance by bringing in independent board members

5. Seek outside advice to help ensure a smooth transition

Succession planning often brings up strong emotions, making it difficult for family members to look beyond their personal relationships to focus on the business at hand.

In these cases, it can be helpful to have a neutral third party such as a family business advisor facilitate the discussions, provide feedback, and arrive at solutions.

Most family businesses will deal with succession once or maybe twice. As family business succession advisors, we do this on a regular basis so we bring both expertise and experience. We won’t say we’ve seen it ALL…but we’ve seen a lot!

The Alliance offers family business consulting services. We can help you ensure a smooth transition to the next generation by:

• Developing a shared vision among family members
• Creating a plan to keep the family united once the established leader steps down
• Avoiding conflict between family members by clarifying distribution of shares, roles, authority, and compensation
• Creating a harmonious atmosphere through emphasizing family values, loyalty, and traditions

Succession is a lengthy and ongoing process that shouldn’t be left to chance

If you’d like some assistance with succession planning in your business, book a free consultation call with one of our advisors. We’d love to help.