Successful Transitions in the Family Business
Successfully transitioning your business to the next generation is difficult and there are many questions to answer.
These are a few of the difficult questions that our clients wrestle with when it comes to succession:
- Will shares in the family business be offered to all the children, or just ones working in the business?
- What about key staff who are not family?
- When is the right time to initiate the transition?
- What is the business worth?
- When should I give up voting control?
- What if I start the process and it isn’t working?
Over the years, we have served as a guide for many businesspeople as they navigate the choppy waters of business succession. Through our experience, we have observed certain themes for successful outcomes.
Following is a sample of what we like to see when the next generation is brought into ownership:
- Healthy relational dynamics between the generations is a key factor. If we are starting from a position of poor communication, distrust, and entitlement, the road to a successful outcome is tougher and longer. Alternatively, if there is positive communication, humble attitudes, and trust between the generations, the chance of successful succession increases dramatically.
- Employment in the company is often important. When the next generations’ livelihood is connected to the business, they are invested in the daily operations of the enterprise and therefore, typically care more as an owner.
- Employment in the company is valuable, but so is length of employment. Working with the company for an extended period, whether it is 3 years or 5 years, or more, shows the individual is committed and has gained some experience. Long term employment may also be an indication of an individuals’ job satisfaction which is important in the next generation of ownership.
- We often want to see the next generation have skin in the game. Are they willing to invest their own money to be an owner in the company? If not, this may be a red flag. This certainly doesn’t need to be the whole purchase price. Often it is a small percentage, but when one’s own money is involved, it is taken more seriously.
- Gender should not be a determining factor. While the most common situation is a father passing the business down to sons, one should not assume it will go that way. We have seen multiple examples of very capable daughters, who when given an opportunity in the family business, run with it and thrive.
- It is also helpful when succession is given time to percolate. It is not a process that happens overnight …… in fact, it often requires years to complete. During this time, patience and effective communication with all the stakeholders is necessary.
Please note, that while we have observed these themes for successful outcomes, every situation is different. What has worked for one business transition, may look different for another.
If you would like to discuss your unique situation and feel that our experience and process may be helpful, feel free to contact me at email@example.com.