Eight essential tips for handing over your small business to a family member
Have you planned for succession in your family business yet? Check out these top tips to make the transition a smooth process.
Succession planning in a family business
It's one of the trickiest parts of running a family business: handing over the reins to the next generation. In fact, research suggests that 58% of the UK's family businesses do not have succession plans in place. If you want your business to thrive when the next generation is in control, it's time to start planning.
The decision to transfer business ownership to a family member can be a difficult one. Here are some tips for a smoother, simpler process that will lead to business success for generations to come.
1) Start early
The best way to transfer a family business is to start planning well in advance. A formal succession plan can take up to a year to finalise, and putting it into practice can take many more years. You may not have a single obvious successor, so you'll have to consider a number of options. You'll also have various opinions to take into account, including your own, your chosen successor's, and anyone who’s been overlooked.
Experts recommend starting to plan at least three years before your intended retirement, but this is one of those situations where you really can't be too early. Too many small business owners put their heads in the sand and neglect making plans, assuming that it'll all come together in time - but this is one of those areas where failing to prepare truly is preparing to fail. Get your plans in order early, and a successful transition will be a great deal easier to achieve.
2) Communicate
Family matters are always difficult and must be handled with care. Everyone has their own opinion and point of view, and there's usually quite a bit of baggage involved, too. You don't want to be seen as favouring one child over another. This isn't like picking one candidate for a job. It's far deeper than that, and your decision may bring up old childhood resentments and, in the worst-case scenario, lead to a rift in the family.
The way around it? Simple: communicate. Keep everyone in the loop, and don't try to hide things from your family members. You may not be sure yet about how your family business succession will work out - but while you're making your mind up, your relatives are stuck in limbo. It's absolutely essential that you keep them informed.
As well as sharing your ideas, be sure to listen to your relatives' opinions. Not everyone wants to take over the family business. That can be hard to hear, especially after you've dedicated so many years of your life to making it a success. Communication is crucial here - and that means listening to and respecting everyone's point of view.
3) Decide whether you need to keep it in the family
Family-owned business succession planning can be heartbreaking at times. What do you do if you really want to keep your company a family business, but there are no relatives willing to take over?
This is another reason why it's important to start planning early. You might find that, despite your wishes and dreams, it's just impossible to keep it going as a family business. Then, it's time to think about other candidates for your small business succession: will you hand over the reins to a trusted employee? Do you want to start the interview process to recruit an outsider? Would you even consider selling your business?
These are all important questions for small business owners to consider. It might be difficult to accept, but sometimes it's better to give up on the dream of an ongoing family business in exchange for something more stable and with a brighter future.
4) Institute a transition phase
Once you've decided to step back and have chosen your successor, it's time to do just that: step back. If you have total control of the business right up until the day you retire, there may be a jarring, sudden change in leadership style and tone.
To avoid this, it's best to have a transition phase. During this time, you'll slowly withdraw from the day-to-day running of the business. Take the time to train your successor, then decide how you'll split the workload. The goal should be for you to gradually step back, so when the time comes to officially transfer ownership, you'll already be halfway out the door.
5) Let it go
One of the hardest parts about family business succession models is watching your successor take over and discovering that they have a different leadership style from you and brand new goals for the business. You've spent years and years running your business your way - now you have to watch a relative do things differently.
Here, it's best to bite your tongue unless they specifically ask you for advice. Change is always difficult, and you might have very strong opinions about how the business should be run. However, you need to remember that you're not in charge anymore. Take a deep breath and let them run things in their way.
If you’re still tempted to complain about how your successor is doing things? Talking it over can be cathartic, but choose your audience wisely. Don't go behind your successor's back to talk about them with employees, no matter how much you trust them. Whatever you do, do not get drawn into a discussion on the subject with other family members - especially if they were also candidates for the job. This really is the time to take a deep breath and accept that your time as a leader is done.
6) Get the professionals involved
Many aspects of family business succession planning can be handled in-house, but not all. You'll need to talk with your accountant about how to transfer ownership of your small family business in the correct manner. There are tax matters to consider, and unless you're a financial expert, going it alone is not wise.
You'll also want to discuss the handover with your business lawyer. Handing over the reins of a family business isn't as simple as just declaring that your son or daughter is in charge now. As always, you'll have to dot your i's and cross your t's, getting all the correct paperwork in order before things can move on.
7) Inform your customers
Here's a remarkably common scenario: you're so busy dealing with everything in the family that you forget to tell some of the most important stakeholders - your customers. Remember, these people are also invested in your business, emotionally, if not financially. Make an announcement in advance, and give them time to get used to the new regime.
If you run a shop, restaurant or pub, you might want to mark the change in leadership with a special event. Invite your customers along to thank them for their loyalty and support and to introduce them to your successor. It may be a bittersweet moment, but it'll leave you with great memories in the years to come.
8) Find something new to fill your days
Finally, it's time to focus on yourself. Your days of running the business are over - so what's next? If you don't find something to keep you busy, you may end up obsessing over the business, irritating your successor. It's far better to seek out a productive way to spend all your new free time.
This is your chance to do what you've always wanted. Got a hobby you love? If not, why not take one up? How about booking some long holidays or joining a few clubs? Maybe you'd rather stay at home and spend quality time with the people you love. Whatever you'd like to do, it's time to finally kick back, relax and enjoy yourself. After all, you've earned it.
If your chosen successor is constantly asking you for guidance on business matters, you may need to be firm with them. In the beginning, it's natural for you to stick around in an advisory role, but once they've settled into the position, they should really be running the show. Make it clear that you're stepping back, and they're in charge now. They need to get used to running things without you holding their hand.
Handing over a family business isn't always easy, but it's a necessary part of the journey. With a lot of planning, care and forethought, you can find a way forward that's right for you, your successor, and your business itself.
