What is family business succession planning?
Family business succession planning can be depicted as the ability to paint a clear picture for the next generation for the long term (e.g. for the next 10, 20, or even 50 years) with respect to employment opportunities, management succession, and ownership succession.
While this may sound like a daunting task, it does not need to be. However, it does require the willingness and determination to answer a number of critical questions, such as:Â
- Is working and owning the business a birthright or an opportunity that needs to be earned by family members?Â
- Who can work in the business and are there any educational or other requirements outside work experience that are neccessary?
- Who can own shares in the business, when are the shares transferred, and how is the transfer funded? Do all owners own an equal number of shares in the business?
- Should the shares be split equally amongst the children, even if they don’t all work in the business?Â
- What happens in case of death, incapacity, or voluntary exit of a shareholder?Â
- How should family members be compensated?Â
- What can you do about family conflict?
When these succession questions remain unanswered, family members tend to have different expectations as to how each will be dealt with. At this point, the picture for the next generation is unclear or uncertain, and when this happens, it can lead to conflict amongst family members.Â
Imagine, however, answering those questions in a ‘family business constitution’ (i.e. your family business rules), which would be developed primarily by yourself (the owners) and family members who are active in the business. Once completed and approved by the active family members, these rules would be communicated to the entire family, including spouses and children, at least once a year. This would help paint a clear picture for all family members and facilitate the transfer of the business to the next generation. Everyone involved would know what kind of experience or education they are expected to have to enter the business, as well as who can own shares and how they will be obtained. In other words, they can make informed decisions about their individual and collective futures in the family business.Â
You may think these succession strategies only apply to big family businesses, however, this is not the case. The size, industry, and geographic location of the family business do not alter the need or the ability to paint this clear picture.
