It’s never too early to begin planning, and a properly considered plan is certainly no overnight achievement. Whether you elect to sell, merge or hand over the reins to the next generation, a succession plan is a must. However, there can be obstacles to effective family business succession.
In no particular order, we unpack eight of the most common stumbling blocks in family business succession:
# 1. Time. It’s easy to get caught up in the day to day running of the business, so much so that owners often fail to adequately plan and prepare for the succession process. It’s important not to neglect long term planning in favor of short term management.
Being proactive is key to the process – planning for succession 5 to 15 years ahead of schedule is recommended. Additional time allows for adaptation and flexibility as the business evolves.
# 2. Control. Feeling a loss of control of the family business can often derail succession. Family business owners tend to be exceptionally passionate about their role and their work, and it’s often difficult to concede that someone else may one day run the business.
It’s imperative that succession planning is viewed as a projection of where the company should be in the future. It’s an effective means to entrench a legacy as part of the business culture.
# 3. Communication. Inadequate or inefficient communication opens the door to conflict and misunderstanding, and can destroy any attempt at resolving succession.
Documenting each decision made as part of the succession plan can go a long way to offering the required clarification for all parties. Allowing family members and employees the channels and means to express their opinions, without risking vulnerability, is also critical to ensuring a well functioning succession process.
# 4. Emotions. Given the close interpersonal relationships shared in a family business, the topic of succession tends to stir up a varied mix of emotions. Where there are differences of opinion, tempers can flare and can impede the succession progress.
Managing the emotional component of succession planning is important, and must be balanced with business requirements. Allowing emotions to play too strong a role can prevent effective decision making and disrupt the planning process.
# 5. Entitlement. Certain family members may feel that they deserve to take the leadership reins in the future, and feel justified in the expectations regardless of their suitability.
Younger generations may also use the family name as a way to yield control or to accelerate their growth within the organization; this can deter non family employees and reduce overall morale.
Balancing the expectations of family members with the requirements of the business early on is key to overcoming this stumbling block.
# 6. Lack of Flexibility. A lack of time management and forward planning can often lead to reduced flexibility. Having the succession plan as a regular topic for discussion keeps it fresh and engaged.
It should be a working document that is adapted as the business evolves. Setting the plan in stone too early may result in a succession arrangement that no longer fits the business needs or the direction.
# 7. Inadequate structure. Succession planning is a complex process which requires effective structure and management in order to be successful.
Formulation of criteria, goals, and a desired outcome can facilitate a better planning process. A lack of structure in the planning process can result in poor progress and an infinite amount of back and forth.
#8. Choosing the successor. The task of choosing a successor can be an arduous one. Having a set of goals and criteria can assist in reducing conflict or emotion that may arise as part of the succession process.
It’s also important that the decision is not made lightly, and all potential candidates are assessed based on the stipulated criteria. Having time on your side will allow for more flexibility and mentoring, and may result in a natural successor being revealed.
Having a succession plan in place is a necessity for any business wishing to grow and succeed in the future. Understanding the complexity of the process, along with the use of an independent adviser, can mitigate the influence of any potential stumbling blocks, and can alleviate unwarranted pressure, conflict, or disruption.
This is where a suitably qualified and experienced professional can assist – to help to navigate the path to ensure an appropriate outcome. The risks of net getting it right in terms of family harmony and financial loss are huge.
