Family Succession: How to beat the odds
As many of you will know, launching and successfully running a business takes commitment, motivation and not a little luck. The owners and managers of SMEs can be forgiven for concentrating on current trading, product development, staffing, sales growth and customer trends, rather than when and how they plan to eventually stop working in the business.
However, the reality is that having some idea of an exit strategy in place – even one as vague as knowing that you will eventually pass the business on to the next generation. – can help you determine the actions you take now. It’s never too early to plan for the family succession.
There are over 5 million family-owned businesses in the UK making up over 1/3 of the UK GDP, only 25% have a robust succession plan in place.
According to Businessweek.com, about 40% of family-owned businesses turn into second-generation businesses, approximately 13% are passed down successfully to a third generation, and 3% to a fourth or beyond.
The important thing is that it’s never too late to plan – leaving things to the last minute or making snap decisions over the future of your business, could prove very costly – so the sooner you can plan your exit strategy, the better.
Family Succession: Exit Strategy
Family Succession as an exit strategy, unlike others, does not require too much involvement of external parties in your exit strategy. It can be one of the most straightforward options when done right.
Since many business owners wish to keep their business in the family long term and preserve their name and legacy, this plan might just be the exit strategy they need.
The family succession exit strategy involves transitioning the company to a child or another relative at a certain point. With this exit strategy, you, as a business owner, can identify and prepare successors over time to ensure they know all they need to effectively run the business when you are out of the picture, either partially or completely.
Although keeping the business in the family for multiple generations might seem like an attractive plan, you need to ensure that your family relationships can handle the stress and volatility of running a successful business. You also need to be practical about whether or not a family member of yours is truly the best person for running the business.
However, if your family has been brought up with intimate knowledge and understanding of your business, they might be the best people to pass the business’ reins on to. If you are seriously considering the family succession exit strategy, some of the things to look out for include ensuring that whoever you are preparing to take over the business has the relevant skill set required to run the business is competent and reliable and is committed to making sure the business succeeds in the long run.
Steps to Ensure Successful Family Succession
To ensure your family succession plan works out, you need to;
- Start Planning Early: Right from the start of your business, it is always advisable to have both business growth strategies and business exit strategies mapped out alongside your business plan. The longer you get to spend on succession planning, the smoother the transition process is likely to be.
- Involve Family Members in Discussions: Before you make the final decision on the candidates to take over your business, you should discuss with family members to know who is interested in being involved in the business. This will help you avoid causing strife and discord in the family on the sudden announcement of a successor.
- Be Realistic: You need to be realistic about who is capable of handling the business upon your departure. You need to examine the strengths and weaknesses of all possible successors as objectively as possible before making a decision.
- Do What is Best for the Business: Sometimes you might want all successors to have equal shares and control of the business but this might not work in the interest of the business in the long run. Always think of and consider what is best for the business before making any major decisions.
- Train Your Successor(s): You know the business more than anyone else and so you need to train all possible successors for the role. You need to teach them all they need to know about running the business, the values of the business and track their progress.
- Get Professional Help: Lawyers, accountants, financial advisers, and others can help you put together a successful succession plan. You might even want to enlist the help of companies that specialise in this to help you ensure the succession is smooth.