A Brief Introduction to the Family Business Succession Process
Business succession planning is something that should be a priority for any business that is family-owned, yet it is something that many family business owners put off. While succession is ranked as the second-most important thing family business owners think about, a recent survey found that over 40% did not have adequate succession plans in place.
This is perhaps understandable — nobody likes to think about their own death, or even about retirement when the business they started is doing well. However, to ensure that a company stays in the family and continues to be a success, it is essential to plan ahead. The embedded infographic shows the results of a 2020 survey by Deloitte looking at the key strategic priorities of the modern family business owner.
Dr Edgar Paltzer specialises in succession planning for family establishments at his law practice in Switzerland. Business succession planning can be divided into three main categories.
Ownership
One of the key things to consider when thinking about passing on a family business is which member or members of the family will become the new owner or owners. Ownership does not necessarily have to be the same as management. For example, a parent may decide to give each of their children equal shares in the ownership of a business but give one of them the position of manager while leaving the others as silent partners, or with other roles within the company.
Decisions such as this can often help to alleviate or reduce potential family conflict at the time of succession, as each party has an equal share. However, there may be reasons why this is not viable. There may be several suitable candidates within the family ready, willing and able to take the reins, and it can be difficult to make the right decision, particularly if wanting to avoid conflict.
This decision-making process and the eventual succession can be eased with forward planning and discussion. If family members are aware of the succession plan several years before it needs to be put in place, they will have time to get used to the idea and make any grievances known while the current owner is still in charge. This also allows time for the planned successor to get to know the business inside out and gain the trust and respect of its employees.
Management
The management of a company may be transferred to a family member, or an employee may be designated to oversee the day-to-day running of the business. Again, this is a situation where having everyone involved well-informed in advance can help smooth the path and ensure the business continues to be successful under new leadership.
It may be the case that the offspring the business owner wishes to leave the company to simply does not have the skills or experience to do a good job of managing the business. This could mean it is a better idea to instate a manager from outside the family, or a different family member, while ensuring the child can still benefit from the business.
The pitfalls of not planning properly for family business succession are outlined in the PDF attachment.
