While it’s not always top-of-mind for business owners, succession planning is critical to ensuring the long-term success and value of the family business. A thought-out and successfully executed plan is key to securing a stable and sustainable future.
It’s never too early to begin planning, and a properly considered plan is certainly no overnight achievement. Whether you elect to list your company, sell, merge, or hand over the reins to the next generation, a succession plan is a must. There are obstacles to effective family business succession though.
Completing and executing such a plan is no easy feat, and there are a number of potential stumbling blocks that may hinder progress and prevent effective implementation. More often than not, these obstacles are human-related and should taken into consideration during the development phase to avoid any last-minute panic or disruption.
In addition, there are particular sensitivities unique to the family business structure that need to be taken into account in order to steer clear of any internal conflict or feelings of disappointment. In no particular order, we unpack eight of the most common stumbling blocks in family business succession.
# 1. Time. It’s easy to get caught-up in the day-to-day running of the business, so much so that owners often fail to adequately plan and prepare for the succession process. It’s important not to neglect long-term planning in favour of short-term management.
Succession requires forward planning and thinking. Being proactive is key to the process, and having a succession plan in place anywhere between 5 to 15 years ahead of schedule is recommended. Additional time allows for adaptation and flexibility as the business grows and shifts.
# 2. Control. Feeling a loss-of-control or having a strong attachment to the family business can often derail succession. Family business owners tend to be exceptionally passionate about their role and their work, and it’s often difficult to concede that someone else may one day run and manage the business.
It’s imperative that a succession plan is viewed as a projection of where the company should be in the future. It’s an effective means to secure and entrench a legacy as part of the business culture and should be viewed in such a light.
# 3. Communication. Inadequate or inefficient communication opens the door to conflict and misunderstanding, and can prevent or ruin any attempt at resolving the succession plan.
Developing documentation that rationalizes each decision made as part of the succession plan can go a long way to offering the required clarification for all affected parties. Maintaining open and honest discussion in the family business can also facilitate better communication throughout the tricky process of succession.
Allowing family members and business employees the channels and means to express their opinions, without risking vulnerability, is critical to ensuring a well-functioning business, and an effectively executed succession.
# 4. Human emotion. Given the close interpersonal relationships shared in a family business, the topic of succession tends to stir up a varied mix of emotions. Where there is a variance in opinion, tempers can flare and prevent progress in the planning process.
Managing the emotional component of succession planning is important, and needs to be balanced with the business requirements. Allowing emotions to play too strong a role can prevent effective decision-making, and can disrupt the planning process.
# 5. Entitlement and expectations. In the family business structure there is always a risk of a sense of entitlement. Certain family members may feel that they deserve to take the leadership reins in the future, and may feel justified in the expectations regardless of their suitability.
Younger generations may use the family name as a way to yield greater control or to accelerate growth within the organisation; this can often deter non-family employees and reduce the overall morale
Family members who have been part of the business from the get-go may feel a reluctance to step back from management and influential roles, preventing younger generation involvement in determining business direction. Balancing the expectations of family members, with the requirements of the business is key to overcoming this particular stumbling block.
# 6. Lack of Flexibility. A lack of time management and forward planning can often lead to reduced flexibility in the plan. Having the succession plan as a regular topic on the board’s agenda keeps it fresh and engaged with the on-goings in the business.
It should be a working document that is adapted as the business grows and shifts. Setting the plan in stone too early on may result in a succession arrangement that no longer fits the business needs or the direction of the business.
# 7. Inadequate structure. Succession planning is a complex process, and requires effective structure and management in order to be successful. Ensuring adequate engagement from the affected family members, while maintaining effective business function and progress is important.
In essence, the family business needs to plan and make allowance for the succession plan. Formulation of criteria, goals, and a desired outcome can facilitate a better planning process. A lack of structure in the planning process can result in poor progress and an infinite amount of back-and-forth.
#8. Choosing the successor. The task of choosing a successor can be an arduous one. Having a set of goals and criteria may assist in reducing any conflict or emotion that may arise as part of the succession process.
It’s also important that the decision is not made lightly, and all potential candidates are assessed based on the requirements and stipulated criteria. Having time on your side will allow for more flexibility and mentoring, and may result in a natural successor being revealed.
Having a succession plan in place in undoubtedly a necessity for any business wishing to grow and succeed in the future. Understanding the complexity of the process can mitigate the influence of any potential obstacles or stumbling blocks, and can alleviate any unwarranted pressure, conflict, or disruption.
Planning for succession takes time and a considerable amount of effort, allowing your business ample opportunity to work through the process can increase the chances of a pain-free and effective succession.
© 2017 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.