Succession Planning for Family Businesses

Who doesn’t know, the well-known title and chorus of Sister Sledge's 1979 single "We Are Family"? Who hasn’t gotten up to sing and dance to the lyrics…?“We are familyI got all my sisters with meWe are familyGet up everybody and sing”But you may have a harder time remembering the third verse …“You won't go wrong, oh-noThis is our family Jewel”The transition of a family-owned business mixes in a variety of legal and tax issues with the complexity of family dynamics. “You can’t start too early” is a common refrain in succession planning for family businesses. Succession planning in any company brings challenges. But things can get especially tricky when a family business decides it’s time to determine who will be in charge after the founder moves on — or worse, if the decision is forced by a sudden retirement or death. Here's how to do it the right way.

Start Talking About It Early

Family discussions about succession planning are difficult because topics like finances, death, management of the business, children involved in the business, and children not involved in the business, are hard to talk about. It’s important to start these discussions sooner rather than later to avoid business problems, confusion and family discord.

Prepare for Emotional Turmoil

Understand that no matter how much you think you are ready, emotions can run very high during the planning phase and actual transition process. Money, sibling rivalry, and ambiguity about the future —all of these things can make this a very sensitive time.Additionally , it can be harder than expected for an owner to step back and step out of the company. The owner may need help letting go and passing the baton to the next generation. It requires that the owner slow down at the same time others are stepping up.Other challenges can include:

• Ensuring that the values that made the business successful are understood and are carried on by the new leaders and owners.
• Making sure both the financial security of the owner and compensation of the new owners and managers is designed to fairly meet the needs and goals of all stakeholders.
• Dealing with family members who want to run the company who are not ready or able.

Create a Family Charter with Ground Rules

To help things go smoothly, write out a family charter that sets out things such as core values, rules for employing family members, the transfer of ownership stock, profit distribution and a protocol for resolving conflict. Even in a family where everyone generally gets along, conflict is not an “if” but a “when.” Through it all, ensure that the family and organizational values inform decisions and new directions.The family-owned companies that move most smoothly through succession tend to be the ones that have clear ground rules in place for family members working in the company. These rules serve as guidelines for everyone to follow as family and non-family contributors and leaders prepare to take on different roles.Successful family-owned businesses often have clear rules and expectations for family members in the business. For example, some companies insist that family members work for at least a few years in another organization before they can work for the family company. Others require that family members start at the bottom and work their way up, just like any other new employee.

Set Clear Goals & Timelines

The transition process must be orchestrated to ensure the business, its customers and employees see this as a seamless process. Setting timelines and goals on the financial, legal and people side of the business transition gives everyone a roadmap to follow and may help with the uncertainty and change inherent to the process.

Be Objective About the Best Fit

A family business is just that — a business. It needs to thrive and grow just like any other organization, so it needs to have the right people in the right positions to succeed.Not all family members are suitable for leadership and management roles. Family companies that have successful succession plans choose the best people to run the company — regardless of whether they’re family members — so that there is good management. Don’t assume they’ll just be successful on their own; ensure that family and non-family leaders and emerging leaders are prepared through coaching, support and development opportunities before, during and after the transition.Does your family business need a succession plan? Contact us to learn how we can help.Success Labs is a leadership development and management consulting firm in Baton Rouge, Louisiana. For more than 25 years, our expert team of consultants has worked with hundreds of companies to explore their business potential and improve their company and cultural performance. Contact us to get proactive about your people strategy.