When family members are your coworkers, business can get complicated. This is especially true if you plan to pass your business on to family members after you retire.
If you’re running a family business, making a succession plan for the future is a must.
As a business owner, you may find yourself involved in the day-to-day aspects of running your business. You are busy, and maybe you haven’t taken the time to think about family business succession.
But without a plan in place, you could find yourself facing emotional conflicts or legal disputes with family members in the years to come. Here is a look at why you need a family business succession plan.
Start Succession Planning Now
If you’re running a family business and plan to leave it to one or more relatives, the sooner you plan for that transition, the better. There are many things to consider.
Developing a written strategic plan is a good idea. Although the plan may change with time, here are some things to consider.
- Estate planning
- Employee stock
- Life Insurance
- Ownership stakes
- Voting rights
Planning 5 years before retirement is good, but 10 years is even better. The longer you have to plan for the future of your business, the smoother the transition process will be.
Be Realistic About the Future
It’s important to give considerable thought to which relative will take over the business. This is a difficult decision for many family business owners.
It’s an emotional decision, but the long-term implications are real.
You may want your first-born son to run your business, but he may not be up to the challenge or have the interest to do so. There may be another family member who’s more capable or more deserving.
The best family businesses limit family jobs to those who are qualified and motivated.
When a family member feels obligated to work in the family business, they may lose interest and find other pursuits to follow. Be realistic and examine the strengths and weaknesses of possible successors in an objective way.
Put the Business First
Making sure that everyone has a share of your business may seem family-friendly, but this may not be the best idea for the future. In fact, it is a good idea to offer the successor(s) a larger share of your business than you offer other family members.
This could help avoid conflict later on. You could also establish voting and nonvoting shares. This ensures that only some chosen family members have a say in company policy.
It’s tempting to place the emphasis on “family” rather than your “business.” But it is critical to think of the future of your business.
Placing it in the wrong hands can be a disastrous move for your business and your family.
Some experts advise against hiring family members. But there’s a long history of great family businesses in the U.S.
Many companies then and now wouldn’t survive without the hard work and sacrifices of a dedicated family. Loyal family members are a tremendous asset to your business.
Although business succession planning may require you to make some tough decisions regarding family, remember to be fair to all your employees.
Avoid favoritism. Keep pay scales, work schedules, and promotions evenhanded among your employees, family, or not. Set your standards high for all employees.
Allow your children to pursue their dreams, even when it doesn’t involve the family business. An unhappy employee is a drag on your business and a poor choice for a future successor.
Seek Help From Experts
Making decisions about the family business can lead to a tangle of emotions within the family. It’s a good idea to seek guidance from a business advisor or financial expert.
They can help you take a look at the real financial picture of your business and help you plan the best steps for the future. Choose someone who is outside of the family and not affiliated with your business.
You want an advisor who can take an objective view of the situation and help you put together a plan for a smooth business succession.
Require Outside Experience
If you plan for your children to take over the family business, make sure they have some work experience behind them. Some business owners require at least 5 years of work elsewhere before bringing them into the business.
Young people need time to learn and mature. Working in another industry or obtaining a degree provides an opportunity to gain a valuable perspective on the business world outside of the family setting.
Choosing Isn’t Easy
You have many factors to consider when deciding if a succession plan is the best option. With some family businesses, an easy and logical choice is to sell the company outright.
But many business owners love the idea of their business staying in the family and passing it down one generation to another. It’s a way to continue their legacy after they’re gone.
If you have more than one child or family member to choose from, it can be tough to decide. You don’t want to create lasting resentments that will tear the family apart.
Putting a clear succession plan in place well ahead of time allows everyone to become accustomed to the idea. Based on your decisions, your children can decide whether to stay or leave the family business.
Ultimately, it’s your business. And it’s your job to make the best choice for your business and your family’s future.
Retain the Best
When you have great employees, family or not, give them a reason to stay. Be sure to provide some great benefits and incentives for your best employees to stick around.
Keep an open-door policy and address their concerns as they come up. Have confidential and honest conversations with your top employees. Talk about their goals and the realistic opportunities within the family business.
Family Business Succession Plan
A proper family business succession plan requires careful thought and preparation. Business owners hoping to create a smooth succession plan need expert advice with this critical business decision.
If you need help finding the right person to lead your business into the future, we can help. Contact us today to discuss your business needs.