Perfecting your family business succession planning
Have you ever thought about how your family business will look when you’re no longer in charge? Do you envision your business lasting? If you answered yes, you should start making a family business succession plan.
Family business succession planning means figuring out who will run your business after you, and preparing them for the role. It’s something many business owners don’t think about until they approach retirement.
Why is family business succession planning important?
Family business succession planning is critical to ensure that your business endures for generations to come. Less than half of all family-run businesses survive into the second generation, and that number gets smaller for each new generation.
By having a plan in place for the future, you minimise the potential turmoil that may be caused by a change in management. It also means you can keep your business assets valuable. That’s because the overall business will be in better shape and you may be able to reduce the amount of tax owed.
Advantages of family business succession planning
Even if family businesses survived without succession plans more often, succession planning would still be useful. Having a successor identified and ready makes estate planning easier. A succession plan clarifies who gets control of things like bank details and corporate shares.
Succession planning in a business is like disaster insurance for a house. Even when you’re not planning to hand over your business, something can happen to force a change. Much of the time, changes in family business leadership happen because of events like illness or death, which are unpredictable.
Thinking about your succession plan forces you to consider who in your business is best suited for what. That’s useful for more than a changing of the guard. Knowing who is good at key tasks identifies areas for improvement in your business and makes it clear where vulnerabilities lie.
It’s also possible you won’t identify a suitable candidate for succession. That is helpful to know as well, since it gives you two options to consider. First, you can invest time preparing people you have for the responsibility. And second, you can start looking for outside hires with the needed skills.
Letting your employees know that succession is on your mind can be a great motivator for anyone interested in running the business. And over the course of figuring out your successor, you’ll learn more about the way your younger colleagues operate and how everything fits in the overall business structure.
Family business succession planning can help protect your brand. When there’s no plan and someone comes from the outside to run your business, they may not understand your mission and values. What’s more, they may have their own processes and values that can result in a radical change for both the brand and the company culture.
By having someone internal lined up, you can ensure that the next generation of your business is run by someone who understands the values that drove your generation. It also means that the next generation will have a deeper understanding of your business’s customer base and brand promise.
Finally, a family business succession plan forces you into taking a long view of your business. Even discounting the chance of unexpected changes, planning far in the future is good. Having a window for employees who are leaving to teach their replacements is invaluable. And thinking about your long-term development allows you to preserve any business relationships during a leadership change.
Steps to a family business succession plan
Ironing out a family business succession plan is a great process for any business, but what does that mean exactly? There are a few steps to keep in mind.
These 7 stages of succession planning will help you figure out what your business needs and who in your business can fill these needs. It’s important to remember to start early. For one thing, you can’t predict everything that might happen, and a plan B is always good.
For another, starting early – and communicating early – can help smooth over any confusion or controversy that arises from your choice. Setting the succession in motion early gives people time to understand your logic and gives people opportunities to discuss any issues or reservations.
7 stages of family business succession planning
Identifying key positions
Before you make any plans, you need to know what your family business needs. Figure out which positions, skills or backgrounds are essential to your company’s success. That means considering everything you do in your business – from dealing with supply chains to customer relations to developing products – and figuring out what qualifies someone to do those things.
Write down what you need so you have a base to work from. Then, you can see which of these positions are covered and by whom, and which of these positions need covering.
Have open conversations
Once you have an idea of what your business needs, you’ll probably have some idea who at your business would be able to take over. But does your successor want the job? Particularly when it’s a family member, there’s a tendency to assume whoever you choose will be on board, but that’s not always the case.
It’s important to have transparent conversations with your potential successor and with your other family members. Ask if involvement in the business is something they want, and make it clear that it doesn't have to be. As much as you might expect your sibling or child to want to be part of your business, you need to respect their wishes too.
Having these conversations early is vital for two reasons. First, if your ideal candidate declines the role, you have time to investigate other options. And second, informing everyone of your plans gives them time to adjust and understand your decision. That’s especially useful in a family business, where there are often additional personal factors to consider.
Develop your successor
Choosing a family member to run your business after you step down is a great way to safeguard your brand and keep your values intact, but you also have to make sure they’re technically up to the task. And since training like that can take years, that’s another reason to start succession planning early.
This training can be an additional degree, independent courses or additional work experience. Having your successor work somewhere else for a few years can be a great help to your business.
Working at another business allows them to hone their skills and absorb different ideas that they can bring back to your business. It exposes them to different ways of thinking, and success in an unfamiliar environment builds confidence. Outside experience is also a great way for your successor to develop without disrupting your own business.
Consider hiring outside the family
Choosing a family member is the easiest way to keep your mission statement and values consistent in the next generation, and you can always train them if they’re not quite ready. But what if you don’t have the time or resources, or no one in your family is interested in running the business?
Many family businesses look outside the family for their employees. It’s pretty common to need ‘regular’ employees at some point, not least because of the different perspectives and experiences they have. Outside employees often have qualifications that family members don’t.
The number one thing to be sure of when you consider passing your business to someone outside the family is that they understand your values. If you want the brand you built to stick around, it has to have the same convictions and purpose behind it.
Cover any talent gaps
Now that you have a successor chosen, take a look at the rest of your business. What will you still need to account for once you leave? What does the future successor’s absence from their current role mean?
To make sure all the roles that need filling stay filled, you’ll have to hire more people or expand existing roles. If you’re hiring additional staff, the same rules about finding outside help apply. Make sure they agree with and embody your mission statement.
If you’re looking to fill talent gaps by expanding existing roles, that should also be part of those open conversations you have with your employees. Find out how much extra work or new responsibilities people are comfortable taking on and make sure that everyone’s happy with any proposed changes.
Facilitate the handover
Ideally, you’ll introduce your successor to their role (and to the business, if they’re an outside hire) while you’re still in charge. That way, you can see how they work, acclimate them to the business, and make sure they work well with the rest of your employees.
It can be tempting to make the handover process brief, but taking your time will almost certainly yield better results. That’s why it’s never too early to think through your succession plan. You need enough time to be confident that the new leadership structure is working well.
You also need enough time to introduce your successor to any outside partners they may need to work with, develop their relationship with suppliers and customers, and teach them to act with your values in mind.
Think in terms of months, not days or weeks. That said, spending too long on the handover can cause your successor to associate the job too heavily with ‘how things used to be’ and be scared to innovate. That may not be good for your business in the long run.
Record everything
Finally, make sure every decision that you make about the succession and the process is written down. It’s important to document these things to inform future decisions. Take note of:
The demands of the position filled.
Things that went smoothly and things that didn’t go so well.
Gaps that may still need filling post-handover.
Knowing these things about your handover will make recruitment and handover easier for the next generation.
Summary
Having a family business succession plan in place is a critical and often overlooked matter. It’s a major reason that many businesses only last one generation. Happily, family business succession planning is something you can begin long before you approach retirement.
Succession planning in family businesses can clarify the way forward, promote a sense of structure and ensure that your brand stays consistent. Working through the 7 steps of a succession plan is how you’ll find appropriate successors.
Was this article helpful? You can learn more about running a family business on our Business Guide.
