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One of the most common questions related to family businesses is: how can a successful business be passed on to the next generation? After all, the preservation of wealth and family legacy is paramount to those who have dedicated their lives to ensuring the success of their business.
It is for these reasons that many family business owners begin planning their succession while the next generation are still very young.
Succession is a lengthy process. It can generate feelings of great anxiety and insecurity for both the older and younger generations, so it is essential that it is well thought out and meticulously planned. In practice, it is advisable to prepare for an active succession period lasting between five and ten years in order for it to be a comprehensive and thorough transition.
As such, here are the 6 most important tips to consider during the succession process:
1. Communication
Family business owners and executives sometimes comment that the younger generation lacks drive. This is often a misinterpretation: the younger family members are usually keen to become involved in the business, but are waiting for a sign from their elders. In the most successful cases of succession, the process is an on-going partnership between the two generations rather than a one-off transfer of power. Open communication is crucial to this partnership as it enables everyone to express themselves freely, thereby creating a solid foundation for trust and transparency.
2. Good planning
In order to avoid family disputes, family wealth and executive power within the business should be distributed fairly whilst taking competence into consideration, in a process that is fully explained to the younger generation. Good planning alongside sound communication will help all members of the family understand why certain decisions were made and allow them to readily accept the outcome of the distribution.
3. A fair process
When important decisions are made in regards to the distribution of family wealth and executive influence within the family business, each family member will inevitably interpret them differently. What may be fair for some may appear unjust to others. The succession process should therefore incorporate clear and transparent rules, and these ought to be applied to everyone without exception.
4. Family agreement or constitution
A family constitution is a document that sets out the rules for relations between the family and the business. No two constitutions are alike. It is extremely important that family business stakeholders create sufficient time and consideration to drafting this defining document so that all its rules and regulations are clear and fair. By having each family member participate in the discussion process that defines the constitution, the family can reach a collective understanding and implement it effectively.
5. Role of the parents
It is the role of the parents to transmit a healthy business and instill in their children strong values and business acumen. But the outgoing generation often has a difficult time relinquishing their hold on the business that they have loved and built over such a long time. Parents must find the courage and resolve to bequeath the family business to their children and to let go.
6. Role of the incoming generation
It is the responsibility of the incoming generation to show motivation and commitment to the business as well as the family values. Once they take over the family business, they should dedicate themselves to nurturing and protecting the institution that their family has built.
