Bringing Family into the Family Business
Succession planning is a process to establish a comprehensive strategy to find the next generation of leadership talent, develop that talent, and match that talent to a particular role. One of the biggest mistakes owners make is waiting too long to start the process. The best way to ensure success is to be proactive. Start planning early, establish open communication, and identify and implement the tools and resources that can help ensure a successful succession.
Here are some suggestions on how to ensure there is a seamless and successful succession:
Identify the next generation’s skills. For a succession plan to be successful, it is imperative to be objective and for the senior generation to take into account the skill levels and personal interests of their children or other family members. While there can only be one president or CEO, that doesn’t mean others can’t also have important positions. Proper planning will help avoid future family conflict that could negatively impact the business.
Let your children establish themselves outside your shadow. Some experts believe succession planning will be more successful if your children gain experience and success on their own first. That way when they come back to the family business they will have a proven track record and the confidence and experience that come with it. It is also advised to bring your children or other relatives into the company at a comparable position they had outside the family business so they can work their way up to taking over. This helps eliminate the perception, of other employees, that your family members simply had their positions handed to them without earning it.
Don’t be a backseat driver. The company founder needs to make a graceful exit. Once succession happens, the original owner needs to bow out and let the next generation run the business without having their decisions and general authority undermined. Whether it’s starting a new business, taking up a new hobby, volunteering, or pursuing a personal passion—having something to do will lessen the temptation to second guess those now running the family company.
Avoid future conflicts. Think carefully about offering stock options to children or other family members who are not employees. Generally speaking, those who work at and/or run the company will want to spend money reinvesting so they can expand the company for continued future success; those who don’t work at the company often tend to care more about dividend money in their pockets today. That can prompt infighting that can damage the company’s long-term sustainability. Consider setting up a separate trust for children who pursue careers outside the family business.
Determine if your business model is viable long term. There is no guarantee that today’s business model will remain viable for the next generation. Ask someone who owned a video rental chain five years ago. The growth of Netflix, Hulu, and other streaming formats was the writing on the wall that the video industry’s best days were behind them. If your business remains in a stable industry, then family succession planning makes sense. If it’s not, you may want to consider selling and eventually dividing up the proceeds among your children as a part of your estate plan.
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