Poorly managed family business successions have destroyed untold amounts of value in individual businesses and ripped countless families apart. Don’t let your business or your family fall victim to the same traps that have haunted business owners for generations. For example, The Donald and his three Trump real estate heirs were recently profiled in the WSJ, and the article alluded to their failure to address two golden rules of succession:
- Plan early & often: It’s never too early to plan succession in your family business. In fact, the longer you wait, the more touchy the situation becomes.
- Beware the 2-headed monster: Rarely – if ever – is it good for the business to have more than one leader at the top. Resist the urge to placate your kids and make the right decision for the business.
In our experience, there is a right way to manage a family business succession…here are some things to consider:
First, Determine the Family’s Needs
- Ensure the family decision-making process is transparent – Who is responsible for making decisions on behalf of the family? How are the decisions communicated to the family? How does decision-making responsibility change as the family grows and/or generations mature?
- Determine how the family wants to benefit from the business and revisit it over time – Is the goal to maximize the family’s wealth through the business? Or to provide other family benefits such as employment opportunities or a creative outlet for family members? How do the family’s needs change as the family evolves and the business evolves?
Then, Run the Business to be Successful
- Set clear goals for the business and revisit them over time – How can the business be leveraged to deliver what the family needs from it? What are the opportunities and limitations for the business based on the family’s needs? Which alternatives are most likely to deliver on the family’s needs?
- Establish clear factors for decisions about the future of the business – Based on the business goals, how should the business be run? What factors should drive decisions about the business? When is the right time to bring in professional management? Sell the business? Transition to the next generation? What attributes will the next generation need to demonstrate to earn a role in management?
- Set up an advisory board to reinforce objectivity in pursuing the business’s goals – Which advisors (based on expertise and relationships to the family) are best suited to help guide the business through the inevitable family challenges? How are they empowered to ensure the business is well-run and able to address the family’s needs?
Manage the Family’s Role & Expectations
- Treat succession as a matter-of-fact aspect of managing the business – What are the factors that will determine who succeeds in management? How will the successor be selected?
- Educate the entire family about the business goals and succession process – What are the family’s needs that the business is fulfilling? How does the business deliver value for the entire family (spouses, the next generation, etc)? Why is the chosen approach important to the family and its needs?
- Develop clear guidelines for family member involvement in the business – When can family members work in the business? In what roles? With what preparation? What education or experience requirements are required to advance in the company? Who decides when or if a family member is employed, advances or exits the company?
When you come to the fork in the road, make the best decisions for the business and don’t look back. If you have defined the business goals in the context of what the family needs, you will also be doing what’s best for the family. And, if you’ve effectively balanced the family and the business perspectives by following the tips outlined above, the bulk of the family will be supportive of the plan.
It sounds easy. But, the reality is that family business successions are hard. Very hard. Emotional attachments to the family’s legacy and emotional baggage from a lifetime of family ties (and sometimes drama) cloud judgment and objectivity. The sooner you start to plan for the transition, the sooner you can begin to bring balance to these perspectives.
When’s the best day to begin planning your family business succession? The day you start your business.
When’s the second best day to begin planning your family business succession? Today.