Majority of family business owners would like to see their businesses transition to the next generation of family members, but will the business survive the founding stage? Statistics show that an estimated 70% of family businesses will not survive into the 2nd generation and 90% will not make it to the 3rd generation. The inability to effectively manage the family component of the business (family expectations & family dynamics) has proven to be the major stumbling block for family business in the ownership & management succession process.
How do successful ones make it? We would like to offer guidelines to help you during the succession process:
1. Family business succession is a process not an event: As a business owner/ founder with the hope of handing over to your children, start planning for that transition early. There are a number of things you need to work through like estate planning, taxes, ownership stakes, management hand over, etc. and these take time to action. The rule of thumb is you probably need about 10 years to plan for succession.
Make a conscious effort to present a balanced perspective of the family business to enable the next generation better appreciate the business.
2. Have family meetings: At these meetings, the family business rules should be formulated by the family members active in the business. The rules would typically cover ownership & management succession issues including:
a. Criteria for the employment of family members
b. Compensation for family members
c. Grooming the successors
d. Criteria for ownership in the business and how ownership transfer is to be funded
3. Present the business as an option not an obligation
Many hope their children will want to follow in their footsteps and join the family business. As pleasant as this seems, it is important to extend an unconditional offer of support during the child’s high school as it is healthy for them to think of the business in terms of an option.
4. Let your successors get outside experience
With 3-5 years’ experience of working for someone else, your sons and daughters can build their own identity, increase self-confidence, get outside knowledge, make mistakes on someone else’s time, learn to take criticism and ultimately learn that there is no such thing as a perfect boss or perfect business.
5. Create an advisory board
We recommend advisory boards to businesses as they can provide counsel regarding succession, selection and development of the next generation owners and leaders from an objective standpoint. The Board should consist of non-family members such as the lawyer, accountant, organizational specialist etc.) who can bring fresh perspective to issues faced by the family and family business.
We hope that you can take advantage of these guidelines & professional advice available to you, be candid with your family and staff and successfully have a smooth transition of your family business to the next generation.
Olumide is Partner & Team Lead, Start-up Advisory at Acuity Partners. email@example.com