To ensure continuity, a succession plan is absolutely essential for every family business. And this is regardless of whether the family runs a global empire, family farm or corner store.
History shows that succession is the Achilles Heel of the family business. A key study on family-owned enterprises in Australia found that 40% of these businesses would employ a non-family member as their next CEO. In 58% of these cases, this is due to the lack of interest by younger generations in the family business.
Regardless of who will take over the reins of your family business, here are six steps to help ensure that your succession is a success:
- Board meetings or formal family meetings should be held regularly. There must be a defined business agenda and open discussions encouraged to ensure no break-down of communication between all of the family members involved in the business
- Plan for the exit of the older generation by setting dates and establishing retirement funds to ensure that they are well provided for. If you fail to have the total support of the older generation they are unlikely to relinquish their position.
- Who replaces the older generation at the helm of the family business is a vital issue because in order for the business to succeed it may not always be appropriate for the eldest child to automatically take the lead (whether he or she expects to or not!). There must be full and frank discussions on this issue and firm decisions made.
- Seek professional advice. It is crucial that all-important planning issues are discussed with your accountant, solicitor and financial planner.
- Dates for future meetings must be set so that discussions continue until a plan that provides for all family members in the business has been completed.
- It is imperative that you keep your plan current. Succession plans require periodic revision and updating to ensure that what you have agreed upon remains relevant.
There is an old saying. “The first generation makes it; the second generation takes it; the third generation breaks it.”
Times have not really changed in this area, but the simple and commonsense approach of preparing in advance, seeking professional advice supported by sound, unemotional management, will set the future of the business in good stead.
Please do not hesitate to contact our friendly, professional and experienced staff if you feel we can assist you in any way.
Source: Succeeding Generations: Realising the dream of families in business, Ivan Landsberg
http://www.mgiaust-survey.com The MGI Australian Family and Private Business Survey 2013