That’s why it’s imperative to approach this situation with forethought, and create a clear succession plan ahead of time that can be implemented when the time arises. It doesn’t matter how successful a family business is in one generation if it isn’t able to effectively transfer then momentum to the next generation. Without a good succession plan in place, each time the business passes into the hands of the next generation, it could face failure, no matter how well it was doing previously.
It is because of this reason that we bring you a 5 step plan to working out the perfect succession plan for your company.
The best place to start is to take stock of what the current succession plan of the business is, and then move forward from there. Next, it’s important to take the plans, opinions and objectives of each party involved into consideration.
You need to assess the retirement plans of the outgoing generation, and then also evaluate the goals and interests of the new generation. It’s very important to establish early on if the goals, both personal and professional, of the next generation align with those of the business.
Along with assessing the people involved in the succession, this is the perfect opportunity to project future goals and objectives for the business itself. Once all these factors are taken into account, then the foundation for the succession plan are set.
Now is also a good time to bring in professional advisors to oversee and assist with the rest of the process of establishing your succession plan.
The succession plan should be written down, making it concrete, straight forward
and not open to interpretation at a later date. Ideally, it should also be
inclusive enough to be adapted for future successions, and not just the
The succession plan should include:
An important part of the succession plan is how the transition will take place between the current ownership and the new generation.
Establish within the succession plan how the business will be handed over – will the successor be expected to purchase the company, or will it be gift/bequest from the previous generation? If the company chooses to sell, what purchasing options will the older generation offer the successor?
Lastly, the succession plan should outline a timeline for how the succession will take place.
Once the succession plan has been drawn up, then its contents must be communicated to the family, those active within the business, as well as non-active members. In order for the succession plan to be successful, and afford the company a seamless transition between generations, every family member must fully understand how the succession will work, and what their part is within it all.
Original source: Michael Evans, “5 Steps To Create A Viable Succession Plan For Your Family Business”, Forbes, 28 August 2013. Available here.