In many recent surveys nearly half of family businesses intend to pass on their business to their children, less than 44% have put a formal succession plan in place.
In this blog we summarise the 5 things to do- following up in more depth in successive future blogs.
- Have family governance structures in place
Transitioning management and ownership in a family business is a time of great change creating opportunity and uncertainty in equal measure. Governance structures formalise the way businesses are managed and delineate the separation between family and business. Yet family governance is one of the issues many families seem to be reluctant to address because it forces them to confront major changes in the way they manage the business.
Consider a family business that has a family council, which is used to meeting twice a year to discuss how the business is doing from a family perspective. At one such meeting the father announces that he wants to retire in 5 years’ time and handover the business. A task force of family members might be set up to assess options and put together a plan of action for the next family council meeting.
A family constitution typically supports a family council by, for example, describing the process (previously agreed) for appointing the next MD. A family constitution is typically put together by a family task force over a period of months to deal with the likely situations faced by a family business. By thinking through potential problems, transitions can be managed more effectively.
- Educate yourselves about succession planning
Depending on the succession options open to a family business based on the age and competence of the next generation, the succession planning process may take a number of years. In any event it is likely to take months and so should be viewed as a process rather than a single event. My experience is that a significant minority of family business leaders don’t know how to start the succession planning and value a discussion on the options available and a structure to taking the first steps.
Many family businesses l have come across have majority owners in their 60s, 70s and even 80s. Clearly retirement is being delayed and often as not the current majority shareholders are struggling with the reality of leaving their business in another person’s hands.
Leaving succession planning late is very risky – a sudden death or unexpected illness can harm the business and compromise the family’s financial health.
- Plan for liquidity events
Liquidity events occur when an owner wants to retire or a family member wants to exit the business and possibly sell his/her shareholding. These are predicatble problems, the question is how these events are going to be handled.
Without sources of funding these liquidity events put a serious strain on business cash flow and limit exit options.
- Leverage the ‘family effect’
Repeated studies show that family businesses tend to outperform their non-family peers. Yet many family firms aren’t harnessing the power of the ‘family effect’ – the intangibles such as longer term thinking and strength of relationships that differentiate them from their competitors. Two key actions are to effectively brand the family firm and to leverage the trust clients have for family businesses.
- Give equal priority to management succession as to estate planning
Business leaders can make the mistake of confusing estate planning with succession planning relying too much on drop-dead plans or believing that having a trust in place will ensure continuity and minimise tax.
Estate planning is not management succession planning. If business leaders want to ensure their businesses will survive after their transition or death, it’s critical that they identify and train up a successor and lay the groundwork for the transition.
For further discussion on any of these points contact me on 07974 425 361 or via firstname.lastname@example.org
 PwC 2013 and 2014, Baker Tilly 2013,
 Barclays 2002, Manchester Business School 2006, Nottingham University Business School 2010