Small Business Digest Header Icon   •    •    •    •    •    •    •  
Small Business Digest


Creating Successful Family-Business Transitions Requires Thought, Planning

As the baby boomers move toward retirement, many will be faced with the question of what to do with their family businesses.

Survey data suggest that most want their companies to remain family controlled.

However, enterprising families that want their businesses to be passed on to the next generation have a complex array of legal, interpersonal, financial and management concerns, each of which must be carefully tended to in order for the companies to continue.

Scholars and researchers who study family-business transitions have identified factors that promote or inhibit the succession process from being completed.

Two experts, Priscilla Cale and David Tate offer a check list of dos and don’ts.

Factors that inhibit business successions include:

  • Lack of strategic, estate or continuity planning
  • Changes in business (i.e., lower performance, decreased scale, loss of key customers or suppliers)
  • Insufficient funds to sustain tax burdens, liquidate the exit of heirs, or absorb costs of hiring professional managers
  • An inappropriate relationship between the firm’s past and future (i.e. evidenced by excessive attachment to the past, wholesale rejection of the past, or an incongruous blending of past and present)

In contrast, factors that promote business-succession transitions include the presence of:

  • Incumbents who can “let go” of the business because of an ability to delegate, and who have outside interests and an identity that is not overly connected to the business
  • Trustworthy, committed, capable and well-prepared successors
  • Trusting, genial, mutually respectful relationships among family members (particularly between incumbents and successors)
  • A shared common vision and superordinate goals among family members

Here are some strategies that family-business owners should consider to prepare for a generational transition of the business:

  1. Engage the family in discussion of the future: The first thing to clarify with the family is the extent to which being actively involved with the business (as an owner or manager) is consistent with their personal dreams and goals. Establishing a collectively held vision for the future takes time, but helps ascertain the necessary alignment and motivation to move forward. 
  2. Identify planning needs: Many aspects of planning need to occur for family-business transitions to be successful. This includes planning for the family (e.g., family values and goals), planning for the business (e.g., strategic planning), and planning for the owners/shareholders (e.g., estate or liquidity planning).  
  3. Create forums for planning and communication: It is often useful to develop governance structures that designate who is involved in what kinds of planning, and how decisions will get made. The family council, board of directors and management team are forums that can help make the planning processes both inclusive and orderly. 
  4. Build a strong next generation team: Whether next generation family members will be involved as owners, managers or employees, they need sufficient levels of preparation to fulfill these roles well. That often requires education, mentoring, or coaching experiences, as well as opportunities to work and play as a team.    
  5. Develop a personal exit strategy: In order for the next generation to assume full responsibility, it is important that the leading generation create space for them to do that. This does not mean that incumbent leaders need to disappear from the business completely, but it may mean that he or she needs to have a plan to expand the scope of the person’s life outside of the business. 

Tate and Cale are co-authors of Sink or Swim:  How Lessons From the Titanic Can Save Your Family Business.

© 2018, Information Strategies, Inc.
P.O. Box 315, Ridgefield, NJ 07657