If you want to find examples of failed family business transition plans, you don’t have to search very hard. Less than 30% of family businesses make it to the second generation, and a small fraction of those make it to third or fourth generations. While the odds may be against family businesses, a successful transition can and does happen with proper planning.
Potential Hiccups When Transitioning to a Family Member
Too often the founder of a family business stays in control too long and doesn’t involve the next generation in management decisions. Disagreements between siblings often arise when the second generation does not have insight into how their parents made decisions and their vision for the future.
Other times, an unexpected illness or death accelerates the transition time from one generation to the other. The next generation may lack maturity and the skillset necessary to take over the business.
Creating a Successful Plan to Transition
Effective planning and implementation of a transition plan is key to making sure the family business survives and thrives. Future leaders should be designated and developed over time to give them the best chance of taking over the company. There are some steps business owners can take now to create a smoother transition.
Start the Conversation
Identify who will be part of the next leadership group and talk with them about it to make sure they see their future role in the company in the same way you see it.
Put Contingency Plans in Place
If a family member is unwilling or unable to run the business, is there a trusted third-party who can step in to fill the void, at least temporarily? Sometimes an outsourced CEO or other executive-level person can be brought in to fill a gap and help until the next generation is ready. If you have a relationship with someone you think could fill a role like this, it may be worth discussing it with them now in case they are ever needed.
Begin Stepping Back
Involve the designated successors in decisions and start stepping away earlier than your retirement date so the next generation gets an understanding of what it takes to run the business. They get the benefit of having you available for guidance and support and can start to get comfortable with leading the company with a safety net.
Establish responsibilities for siblings to help to control future disputes. Disagreements can always happen when siblings have competing goals and different management styles. However, when the first generation can lay out their vision, the sibling disputes can be lessened. Siblings have a plan to follow and can have some ideas to fall back on rather than struggle to find their roles and compete for the best way to move forward.
Put it in Writing
Document strategic plans, key relationships and other information that you know that would help in the transition. If you’re out unexpectedly, these resources can be invaluable and help prevent the successors from learning things the hard way.Planning for the eventual transition of the management of your business is key to the future success of the business. Having open, honest discussions with the individuals who will one day succeed you in the business can give your family business a greater chance of outperforming the current statistics. Anders Business Transition Planning advisors can help your family business configure a personalized plan to transition now or down the road. Contact an Anders advisor below to discuss your specific situation.All Insights