A family business is either at its weakest during succession, if the new owners are not fully equipped or untested, or on the brink of a brilliant new era. One thing is certain, the business cannot stay the same, even in the hands of blood relatives, and that’s why it’s important to plan the succession process to its best advantage.
Most family firm owners trust their own flesh and blood more than an outsider to take the reins when they have to step down, but that trust can still be a little unstable.
They want to know that when their business is handed over, the new management will govern their evolving legacy to even greater heights – not leave the business stagnant or worse, diminished.
If you fail to plan, then you plan for your business to fail in succession.
Before you can accurately discern what you are expecting of a successor, you need to first draw up a clear idea of what you and your fellow owners expect from the business going forward. Are there specific goals and objectives you’d like achieved? Write them down and agree on them.
These can include business performance goals, as well as what the retiring family members expect the business to afford them after stepping down.
Identify every successor, from owners to managers of the business, and write down their exact roles and responsibilities. The succession plan must also serve as a clear timeline for how long succession will take for each role and how succession will be achieved.
When it is documented properly then there will be less minor disputes escalating into major ones and every family member can be clear on their path going forward – including what they need to do to fit into their new roles, in the case of the younger generation.
With different generations of the family now having a vested interest in the running of the business – and the older generation having the experience, but now the younger generation having the status – it becomes more important than ever to set out clear governance procedures.
Document everything from how certain disputes will be handled, to the succession plan itself with details of every family member’s role going forward and make sure that every family member and stakeholder is on the same page.
It’s important for the successor to know when they will have the support of key family members in business affairs, and what kind of support they can expect.
Draw up an agreement for the sale of the business that is fair for all parties. It should reflect the worth of the business while also minimising the tax incurred from the transaction.
There are also different ways that the business can be legally handed over to the next generation, including the successors purchasing the business, or it being treated as a gift from the present owner to the new one. All this should be worked out as early on in the succession planning as possible so that all parties know what is to be expected in the eventual handing over of the reins.
The succession plan should state a clear plan for the transfer of stocks between family members in the hand over. If spouses of those involved in the company are stakeholders then it should also be stated here what say they will earn in the running of the business.
Make sure that your legacy only grows with the next generation of the business by ensuring that nothing is left unaccounted for in succession – this way both the present generation and the future generation can work together towards the same goals.