Surviving Succession: Navigating the Transition of Family Businesses

Generational transitions within family businesses can be both challenging and rewarding.

As leaders pass the baton to the next generation, they have to navigate complex family dynamics while ensuring that the business remains resilient and competitive across generations.

Here are some of our thoughts on how family businesses can not only survive – but also thrive – through succession planning.

Start Early

We’re often asked when a family business should begin succession planning. And our answer remains the same: you need to start immediately. That means now. And if you haven’t started now, you’re already too late.

The sooner you start, the more options you’ll have for transferring wealth, leadership, and equity. If you haven’t begun yet, don’t wait a minute longer.

Starting as soon as possible is crucial to ensuring a smooth transition. Delaying decisions about leadership transition just leads to uncertainty and frustration among family and team members.

Have a Process

Succession planning isn’t a one-time event – it’s a gradual process that takes careful consideration and strategic implementation.

At our firm, we follow a three-step approach – it might seem slow and methodical, but we’ve found that, in many ways, it helps family businesses move faster in their succession planning.

Here it is in a nutshell:

Phase I: Planning

Take the time – we estimate at least 90 days – to identify objectives, assess readiness, and prioritize gaps.

During this phase, leaders should articulate their true objectives and goals for succession planning, plus their gaps in readiness – not only from a business perspective, or a financial perspective, but also from a personal level of readiness.

Once this is all clear, we can prioritize those gaps and sequence them into projects or next steps to address.

This is all accumulated in a detailed succession planning report, which is used to inform the next phase.

Phase II: Implementation

This phase can span from one to several years, depending on the complexity of the plan.

Implementation is about executing the priorities outlined in the planning phase.

Keep in mind: once the way forward is clear, it’s essential to put your succession plan into practice.

Waiting too long can leave potential leaders feeling left behind and create ambiguity within the organization.

Phase III: Review

Regularly review and adapt your succession plan to accommodate changes in the family or business landscape.

We recommend that our clients review their succession plans at least once a year to make sure they remain accurate and relevant.

Avoiding Common Mistakes

As you’re engaged in succession planning, it’s also important to avoid the types of mistakes that can derail the process. Here are some of the most common:

  • Lack of Communication: Failing to communicate long-term desires for the business can lead to misunderstandings and conflicts down the road. In contrast, establishing achievable goals as a family – and a leadership team – creates a collaborative environment and minimizes conflict. Encourage dialogue to clarify expectations and minimize misunderstandings.
  • Ignoring Non-Family Talent: Limiting leadership succession to family members limits your talent pool and may hinder your long-term business growth. Recognizing the talent and expertise of non-family members of your team can help ensure that you are deploying talent in the most strategic way possible.
  • Resistance to Structure: Some family businesses shy away from formal processes, preferring to pursue this kind of planning over informal family dinners and the like. But we believe structure is essential for success. Establish governance structures, such as regular, formal family meetings, to facilitate communication and collaboration.
  • Procrastination: We can’t say it enough: perhaps the biggest mistake is waiting too long to start succession planning. Starting early and being proactive are key to success.

Succession is a Requirement for Prosperity and Longevity

Our business was founded primarily because family businesses simply aren’t surviving as long as they did 50 years ago. In fact, roughly 70 percent of family businesses fail to make it past the second generation. And we want to help turn that tide.

We know that succession planning plays a crucial role in ensuring family business longevity. Businesses with effective succession plans are more likely to thrive across generations.

Here’s the good news: while a mere 35 percent of family business owners indicated 10 years ago that they felt ready to transition the leadership of their business, that number has risen to almost 68 percent today.

Proper planning clarifies direction, perpetuates legacy, minimizes conflicts, and prepares your business for positive change.

Embracing succession planning is not just about securing the future of the business – it’s about safeguarding the legacy you’ve worked so hard to build.

Would you like some support with your succession planning process?

Our team at Ferguson Alliance would love to help.

Reach out today to schedule a call with one of our trusted family business advisors. Book a call

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