Owners of a family business have worked hard to build a successful business and most have a dream of passing the business on to the next generation. However, passing down a family business can be a complex process, and younger generations may not have all the information, experience, or even the interest they need to be put in a position to lead. So, for a family business to survive across generations, assuming current leaders don’t decide to look outside the family, proper preparation and planning are key.
There is a lot to consider when it comes to preparing the next generation to lead including knowing what will help them be successful, how to make room for family and non-family members to advance their careers, making sure everyone is treated equally, and ultimately, knowing how to select the right person.
It’s important to start planning for the succession of the family business as early as possible. This will give you time to consider all the options, make informed decisions, and establish a defined process for developing and selecting the next leader including who has the skills, experience, and interest in running the business. This may include children, grandchildren, or other family members.
You will also need this time to know how you will transition knowledge and key relationships over time, as well as ensuring there are strong financial controls in place. You will need to have a clear understanding from the next generation of what they want from a career development standpoint and how their success will be measured.
Something else to consider as you start the succession process is to remember that as a business owner, often a significant portion of your wealth is tied up in the business, so you need to be mindful of how you will fund retirement and how you will unlock the value you have created.
Planning early helps to ensure that you think past the good intentions of passing the business to the next generation and think about what you and the business need – in other words, you need to think about the transition before the transaction.
Earned, Not Given
As a business leader, you want to avoid making promises like “someday this will all be yours.” It’s extremely important for the next generation to know that leading the family business that you’ve built is not a given, it must be earned. Just because they may share the family name, doesn’t automatically lock them in as the next in line to run the family business.
A best practice we recommend, but not all business owners observe, is to encourage the next generation to further their education by pursuing their BBA, MBA, etc. You could also encourage them to work outside the business first to gain other, real-world experience. This will help give them a fresh perspective on business as a whole and help to make them more well-rounded candidates.
Another way to help prime them to lead the family business is to set the expectation they work in different roles inside the business, starting at an appropriate level and successfully working their way up. It may not be easy for them, but this will be a great, firsthand way for them to embrace the entrepreneurial spirit that the family business embodies.
Have a Plan
As a business owner, it’s important that you have a plan (vision) for the company. It needs to create an enterprise of an “owner vs. manager” mentality to find the best people to run the business and hold them accountable. It’s about building an economic engine for the family, not just providing jobs to family members.
But how does the current generation set the next generation up for success?
Develop a comprehensive succession plan that outlines the roles and responsibilities of the new owners, the timing of the transition, and any legal or financial considerations. This will help ensure a smooth transition to the next generation. And, as you’re preparing your plan you need to ask yourself whether the next generation wants to be in the family business and whether they are even qualified.
You should make sure to communicate your plan with family members and involve them in the decision-making process. This will help ensure that everyone is on the same page and that there are no surprises.
One key component to keep at the forefront of your succession plan is the company’s core values. The core values a business was built on are foundational and are the “touchstone” by which all organizational decisions should be made. These should be clearly defined for the business and should align with key stakeholders and the next generation.
Another key component of your succession plan is to have a clear governance process, with family and non-family advisors to help reduce conflict in the business, and inside the family. This group can:
- Act as a sounding board
- Act as a voice of reason
- Facilitate family discussions
- Help de-escalate family-related business conflict
- Help separate business issues from family issues
- Act as a trusted advisor, confidant
Key takeaways from our experience in helping business owners prepare the next generation to lead:
- Start early, give yourself time to establish a defined process for developing and selecting the next leader.
- Have clearly defined core values (beliefs) for the business.
- Seek the advice of a trusted advisor to help you think through different scenarios.
- Remember that the business is an economic engine for your family.
Transitioning a family-owned business to the next generation family or non-family leader is not easy, but following a proven process can make the transition easier and significantly increase your chances of success.
Jeff has over 25 years of strategic planning, business development, and business transformation leadership experience. Having worked with mid-market, closely-held and family-owned businesses his entire career Jeff has a unique understanding of how these enterprises operate and the challenges they face.
He is passionate about working with business leaders to build strong cultures while developing and executing strategies that deliver exceptional results that benefit all the company’s stakeholders. Jeff’s hands-on approach to working with companies begins with a commonsense approach to strategy development.
With extensive experience in organizational turnaround and growth Jeff follows a defined process (disciplined, focused, intentional) to guide clients from strategy to execution. His experience covers a multitude of industries, with an in-depth understanding of automotive manufacturing.
Jeff holds a Master’s in Business Administration from the Capital University School of Management and earned a Bachelor of Arts in Business Administration and Management from Ohio Dominican University.