Owners of a family business should create a succession planning strategy to secure its future. For owners who have run a family business for many years, forming an exit plan can be emotionally difficult. This is why many family business owners delay forming a strategy, often right up until the last minute.
Only 13% of family business owners have a robust, fully communicated and documented succession plan in place, according to last year’s Family Business survey by PWC. This is extraordinary, considering almost two-thirds of this group of people are due to hit retirement in the next ten years.
Create a solid platform
Succession planning is more than just replacing who’s at the top. It’s about creating a solid platform for future company growth. It’s not just about looking at what’s currently going on but taking into account the steps needed for future success. While this is a problem for many kinds of businesses, it can be particularly problematic for family-run companies.
Here are Turner Little’s tips for success when it comes to succession planning for a family business.
- Be clear about the future view
The owner should establish their view of the business’ future and check whether it matches with the next generation’s. There can be a disconnect between the two that isn’t immediately obvious. While a business owner who has been at the helm for 50 years will want the business to thrive, his or her children may not have the same emotional attachment.
It’s possible that the younger generation has moved on and focus on different businesses or careers of their own. This is particularly the case where baby boomer business founders have held onto the reins for decades until their children have long since grown up and established their own aspirations.
- Be honest
As a business owner, ask yourself whether you have a business or just a job. How essential are you to the operation of your company, for example? If you are the one with all of the knowledge, skills, experience and customer contacts filed in your head, then you don’t really have a business that can be passed on. You have a role that no-one else can realistically fulfil. In cases like this, without the necessary framework in place to pass it on, it can be the most practical choice to wind the business up.
- Develop a workable strategy
Do you have a plan for extenuating circumstances? What if the member of your family that you thought would take the business on doesn’t want to? The best way to stop this happening is to focus on a workable strategy so that everyone involved in the business understands its future aspirations.
- Fill the skills gaps
Sometimes family business leaders try to design the structure of the business around the skills that family members have. This can lead to major skills gaps that in turn leave the business exposed. A clear strategy will stop this happening and can help you tackle the next challenge. This would be selecting, training and developing successors who can fill these skills gaps. It can be tricky when you’re dealing with family members to select successors solely based on merit, as there are generally other emotional considerations.
For example, a business owner with two sons might think it’s fairest to split the business in two and give them each 50% of the shares. However, if one son is more capable than the other and has a solid vision for the future of the business, he can be held back as he doesn’t have overall control. This can then devolve into pointless power struggles and a failing business.
- Be honest in conversations with family members
It can be difficult for the next generation to say to their parents that they don’t want to run the family business. Having a conversation about it will mean more honesty and other solutions worked out with everyone.
If you need to move your succession plan outside of the family, then building a pool of talent is necessary. Align any appraisal and reward systems with your company’s strategy, allowing possible successors to understand what they should do to prove themselves.
- Don’t leave it too late
You can’t start to plan for business succession too early. There are more people than ever set to leave the workforce over the next decade, potentially causing huge problems for businesses without a plan in place.
It’s necessary to have at least two years to formulate a workable succession plan, and ideally around four. Succession plans shouldn’t be kept secret or hoarded away. After all, everyone knows a succession is inevitable at some point and keeping people in the dark can cause problems.
About Turner Little
Founded in 1998 in Yorkshire, UK, Turner Little is a specialist UK and offshore company formation, banking and corporate services provider. Our services include company formation, UK and offshore banking, asset protection, credit correction/repair, trademarking and trusts. Other services include Internet services, mail forwarding, wills and probate. Turner Little’s vision is to offer the best possible service, together with market leading products.