Creating a Succession Plan for your Family Business
The statistics are terrifying. A mere 28% of family businesses, across the globe, successfully move from founder to next generation, and only 4.8% make it to the third generation. How do you ensure that the momentum, built by the first generation, continues when the second one takes over? On The Money Show with Bruce Whitfield, Pavlo Phitidis outlines the fundamental principles of creating a succession plan for your family business:
Creating a succession plan
Many family businesses don’t create a definitive succession plan, and rather rely upon the assumption that future generations will be willing, capable, and equipped, to take over from the founders. Creating a succession plan should include a series of deliberate choices, and not just assumptions. Passing the baton in a family business shouldn’t be an afterthought. Whether your primary objective is to sell the business, or pass it on to the next generation, a succession plan is essential, and shouldn’t just be assumed. Putting pressure on the next generation to take over the family business isn’t a solution for ensuring the success of your business in the long term. Careful analysis of your children’s abilities and interests, matched with the business environment within which you operate, should be undertaken.
The age gap
When a larger age gap exists between founding and succeeding generations in your family business, it can be difficult to find a way forward for the business. With an age gap of 30 years or more between founders and successors, there can be serious problems. The son or daughter who enters the family business at that stage is, very often, just starting out in their career, eager to impress, and confident enough to take risks. On the other hand, the founders are looking forward to retirement, eager to secure their business’ future, and less likely to be supportive of taking business risks. Similarly, founders may find it difficult to let go of their control of their business, leaving the succeeding generation unable to truly manage and grow the business. This can have a significantly negative impact on family relationships too, leading to a breakdown in both business and home life. A smaller age gap between founder and successor will lay the groundwork for a fundamentally different succession approach, because a somewhat younger founder is more likely to be progressive, keen to take business risks, and has more time on their hands to build successors to effectively replace them.
Creating a succession plan for your business must cater for the integral relationships that form part of your business. Family bonds can intimidate staff who have been part of your team for a long time, and similarly intimidate newcomers to the business. Through your succession planning, ensure that control and discipline is exercised around relationships with staff, customers, suppliers, funders, and investors. Most importantly, consistent application of the principles and founding values of your company must continue.
A method for creating a succession plan
No matter the age gap between founder and successor, appointing interim professional management will help to ensure that your business continues to grow, no matter how successful the succession plan turns out to be. While they may end up playing a mediatory role between founder and successor, they’ll retain a focus on building and maintaining your business. It’s especially important when a larger age gap exists between founder and successor, as this will help to ensure the sustainability of your business. When a smaller age gap exists between founder and successor, your interim manager will help to grow and build the business, while your successor grows in skills and experience.
Creating a succession plan for your family business is essential. Let Aurik help, and we’ll help you build your family business into an asset of value.