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Keep It In The Family By Planning For Succession

15th October 2016 Juliette Johnson

Succession is often not dealt with until it needs to be implemented...

Succession planning is an area that many family businesses struggle to deal with, and often leave until it needs to be implemented rather than plan for the transition properly. Plan succession properly and the business can survive for generations to come. Fail to plan can be disastrous so how can families ensure that they survive and avoid the potential pitfalls?
 
The aims of succession
The key objectives of succession are typically to protect family harmony, family wealth and the family business but it is during this period of generational transition that the business is at its most vulnerable. It is also a period when emotions run high too.
 
The transition of the family business raises complex and emotion-laden problems and with so many public tales of acrimony and legal wrangling related to succession planning, it is little wonder that many family business owners fail to plan. However, ironically, it is often this failure to plan that causes the disharmony that they try so hard to avoid in the first place.
 
Planning ahead is crucial
By planning ahead, effective succession strategies can be formulated and implemented in an open and positive environment. There is every reason for optimism.
 
Whilst no two family businesses will ever be the same, there are three core elements common to them all: the family, the business and the owners. A change in the make up, structure or dynamics in any one of these will inevitably impact the other two.
 
Good succession planning means being aware of the interaction of these three areas and adopting an approach that takes them all into account when planning the transition.
 
Two key areas
There are two important facets to any succession planning process: ownership succession and management succession. This distinction is important because of the important differences between ownership of the shares in the business and the day-to-day management roles that enable the business to continue to function on a daily basis. Both are important but they are different roles and should be treated differently. All too often the succession planning process fails to distinguish between the two and the optimal plan for the future is not identified which can cause problems later on.
 
It may be, for example, that the best solution is for ownership of the business to remain within the family but the management is left in the hands of outside professionals who are engaged to perform roles within the business that the family cannot do to the same level due to lack of experience and expertise. Whatever the outcome, it is important that the business decisions are taken for business reasons, not family ones, as often happens.
 
Things to think about…
It is crucial to decide what the vision is for the business and to be sensitive to the needs and expectations of the generations involved in the process. Clear communication is also key.
 
When undertaking the succession planning process there are some key things to consider:
 
Ownership succession
Is there an ownership succession plan in place and is it fully understood and accepted by everyone?
Do the next generation want to own shares in the business?
Are the next generation properly prepared and ready to take on the responsibilities of becoming shareholders?
If shares are only going to be given to those working in the business, how can you be fair to those who do not?
 
Management succession
Is there sufficient experience within the family to take over the running of the business?
Must there always be a family leader and/or a family member on the Board?
Is the next generation prepared to take over the business, and if not, what can be done to address this?
What can be done to ensure that siblings/cousins will work well together when the older generation are no longer around?
How do you balance the needs and requirements of working family members versus non-working?
If external management is required, what can you do to recruit, retain and motivate the individuals concerned?
 
The key to success…
Managing the succession process in a family business tends to be most successful when it results from a well-planned partnership with the next generation. This partnership hinges upon effective communication and a clearly aligned vision between the current and future generations.
 
Succession planning and management need not become the horror story associated with family skeletons and feuds. If planned properly, it can be a period of fulfilment for both the family and the business, and set the foundations for future growth too.
 
All too often we read about family businesses in crisis, those in conflict, or those that did not survive the transition. Little recognition is given to those who do survive through the way that they adapt and change through the years, those that positively plan and embrace the change from one generation to the next, and those where there are good governance procedures in place to help subsequent generations deal with the transition
 
Above all, succession planning is a journey. It certainly does not happen overnight. The journey enables families to work together and determine the best way forward and when done properly is a real force to be reckoned with, putting them on the right road to achieving their goals, both for the family and the business.
 

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