One of the most preventable causes of a failure to sustain a family business across generations is a lack of preparation and in particular, the development of a succession plan. Unfortunately, a considerable portion of family businesses have no succession plan in place.
Below you can find a list of a few simple steps that can be taken within a family business to increase the chances of a smooth transition of the company from generation to generation. Of course, there are numerous more technical estate and tax planning tools that should also be considered, and we recommend that all owners of a family business consult with an estates lawyer to learn more about these tools.
COMMUNICATE – ALWAYS COMMUNICATE!
Communication is key to ensuring that all of the parties involved understand their roles, responsibilities and expectations. More importantly, the discussion provides that everyone agrees with the plan and is on the same page. It is not uncommon for children to not want to take over the family business. They may wish to work in the company at present for the experience but do not want to take on the responsibility of running the business alone in the future. Similarly, a child may wish to run the family business but may be holding back thinking that a parent has a different plan for the family business.
Successful communication enables all parties to plan and ensures that everyone in your family can achieve their life goals. For example, once parents know that children aren’t interested in taking on the family business, they can work towards selling their business such that they are comfortably set up for retirement. Meanwhile, their children can go on to build the careers that they desire.
TRAIN YOUR CHILDREN!
While all business owners hope that their children can maintain their success and even push it further, children most often do not have the same level of experience as their business owner parent. Developing clear procedures and ensuring that the successor is proficient in all aspects of the business is crucial.
Just as it took the business’s founder many years to discover the best methods of business operation, a substantial amount of time must be invested in training the successor. This further emphasizes the importance of planning so that the successor can be identified and involved in the business operations from a young age. Even young children can be included in the family business and raised with a favourable impression of the company and its brand!
Business owners often avoid succession planning due to the number of emotionally charged issues that are associated with passing on the torch.
Children may want to take the business in a new direction that may not have been proven successful – and this comes with risks. Other times, children are aware of new technologies and approaches that are more efficient, but the business owner parent may question that, or not be in their comfort zone. Working together with a successor child before the succession taking place and open communication about changes in direction or new ideas can make these transitions easier on both children and the business owner – and they will undoubtedly ensure more successful operation in the future.
Remember that the business is bound to have trouble transitioning if the owner is resistant to contemplating the inevitability of retiring or the possibility of his or her death. If the owner can’t be open to the idea of new ownership or management, then any sort of realistic succession plan will be difficult to achieve.
Succession plans should be developed early and be tightly integrated with the owner’s estate planning. Your business is one of the most crucial assets of your estate, so no estate plan for a business owner should be without a clear succession plan. With over 15 years of experience, we are here to help you continue your family legacy and keep your family relationships strong.
Call our office to talk about a plan at (780) 458-8228. Remember we are here to help!