How to Start Succession Planning for Your Family Business
Of all the things parents dream of passing down to their kids, there isn’t one quite like the family business. Over two-thirds of all businesses around the world are family-owned, generating an estimated 70 to 90% of global GDP. But unlike old jewelry and baseball card collections, deciding who gets to inherit the family business can be an emotional and difficult task. With just 70% of businesses surviving into the second generation, and only 10% making it into the third, it’s easy to understand why the actions you take now matter more than ever.
Here are a few expert tips on succession planning that can help ensure a smooth transition for your legacy.
Start Planning Now
It’s never too early to start making a plan for who will take over your business. The sooner you start planning, the more time you have to do things right, so start having the conversations that will help you determine your most viable options. Waiting until you’re ill or retiring will just add pressure and stress to what can sometimes be a tense process.
Create Your Dream Team
Remember, it’s not just the physical transfer of the business that’s at stake here. Proper succession planning requires the new owners to be very familiar with the mission, methodology and risks of the company. Be sure to include C-level talent management in your planning, too. While your son or daughter may be the best person to run the business later, they’ll still need a talented team in place to back them up.
Find Impartial Assistance
Family members and friends will have strong opinions regarding the best choice to run your business when you’re retired, and they may not always be thinking from a purely business perspective. Enlist the help of a neutral professional like an accountant, tax professional or business mentor to make sure you’re not overlooking any potential pitfalls or perks in your selection. Considering an outside perspective throughout the process can keep things from getting too emotional or problematic.
Ask for Family Input
Have honest conversations with children and heirs to see how they feel about taking over the business. After all, even if a child has been involved up until now, they may not necessarily want to continue your dream for the rest of their lives. Ensure that your shortlist of candidates for succession planning are truly devoted to seeing the family business live on throughout their lifetime. If there isn’t a passionate buy-in, you may need to consider other options.
Carefully Consider Your Options
It’s tempting for parents to want to do right by all of their children, even at the expense of the family business. While a perfect world would afford us the opportunity to hand down assets and opportunities in equal measure to all of our kids, this isn’t always possible — or practical. If a person isn’t prepared to handle the responsibility of your company, don’t feel compelled to give them an equal stake in the transfer. You know your kids better than anyone, and you can use your intimate understanding of their potential to make the right choices to give them a career they love while helping your business continue to thrive.
It can be difficult to separate personal feelings from the business decisions that need to be made in any succession plan. If you’re the type to waiver under family pressure, make sure you come to the table with backup, whether that be a neutral professional, a spouse or friend. You didn’t build your business alone, so don’t assume these hard choices need to be a solo endeavor.