As a family business owner, you know the stats. Only 30% survive to the second generation, and as few as 10% continue to the third. So the succession plan you develop for your business is crucial to beating these odds. Even though you know you need a succession plan for your business, you probably have avoided discussing it, much like the proverbial elephant in the room. You’re not alone, based on the many family business entrepreneurs I’ve worked with over the years. Why is this? In my experience, there are three common ‘soft’ barriers to succession planning, one or all of which you may recognize:
- Conflict between family and business values - The values that guide your family decisions are based more on emotions, such as unconditional love, than your business decisions, which are based more on hard, discerning facts. For instance, you look at family membership as being for life, but base employee retention decisions on who will help your business reach its goals.
It is often hard to reconcile these values in making business succession decisions, creating problems in both your business and family. For example, deciding that your daughter will serve as company President while your son works as Vice President can strain relations between the three of you, impacting the productivity and direction of your company, and making for uncomfortable family social gatherings.
- Fear of losing identity - Like many business owners and founders, you strongly identify with your business. So much so, you find it hard to talk about one without the other. You say things like, “The business is my life,” or “I can’t imagine myself not running the business.” So succession planning feels a little like planning your own funeral, a situation that few of us are comfortable facing.
- No forum for communication - Most family businesses do not have a forum or process that allows family members to openly discuss thoughts, expectations, visions, or address conflicts related to the business and its future. Without such a forum, you may find it virtually impossible to develop and communicate your succession plans.
Now that you know the barriers, it is time to tackle the elephant. Here are three proven strategies to help you get started on your succession plan:
- Write a family creed - This document outlines the values, principles and rules that will guide family decision-making related to the business, such as how to handle requests for a larger dividend, and how related conflicts will be resolved.
- Create a family council - Like a Board of Directors, a family council has a formal mandate, defined membership and regular meetings. Unlike a Board, the family council talks about your business within the family context. It provides a forum for addressing related family issues and concerns, educating family members about the business and discussing your future plans for your family and the business – including succession. And it can help settle family conflicts over issues such as when and how your children will be employed by the company.
- Develop a Succession Plan and a Business Owner’s Plan - Since family and business values are different, acknowledge this by developing separate plans that reflect each set of values. Use your business succession plan to outline how you will transfer your business, and who will assume ownership or control. Use a personal business owner’s plan to outline how you will treat each of your children fairly once you hand over your business. For example, your personal plan can address how you will provide your daughter with assets or compensation that you consider to be equal to the value of the business oppor-tunity your son is receiving as he buys you out. These two plans will help prevent conflict within your family and ensure that the business is well positioned for the future.
By adopting these strategies and addressing the barriers, you can better prepare your business, and your next generation, to beat the odds and continue your legacy of success for generations to come.
Anna Stuart and Joe Moore are both Partners at Knightsbridge Robertson Surrette, Atlantic Canada’s leading integrated human capital solutions provider. Anna has provided recruitment, strategic and operational advisory services to governments, industries and family businesses throughout Atlantic Canada. Joe has been providing career guidance, financial counselling and retirement planning advice to Knightsbridge Robertson Surrette clients for over a decade.