Many business owners intend to sell or transfer their business to family members. Business owners that employ family members are more likely to keep the company in the family than companies that do not. Many small and medium business owners employ family members. And as an Ottawa Certified Financial Planner, we can boldly say that family businesses play a significant role in local communities while emphasizing customer loyalty and fostering a culture of shared values.
What Are The Challenges To Keeping A Business In The Family?
Keeping and planning the future of a family business has several challenges. For instance, let’s consider the interaction between family, business, and ownership values and interests. Family members have long-standing relationships that will still exist long after the transition. Therefore, it is best always to consider family dynamics. For example, is there a suitable successor within the family, and can they work with other family members involved in the business?
Inter-generational business transfers have a high failure rate due to a combination of several factors. These factors include a lack of a formal succession plan, the tendency to leave the succession plan till it is too late, and the absence of clear communication. By involving family members in the business and discussing their concerns, including open communication, you can clarify expectations of everyone’s commitment and roles for a successful transition. However, assuming that you understand your family member and employees’ perspectives can be detrimental to the succession. Instead, address potential issues through a family council instead of avoiding them.
Involve Your Heirs In Succession Planning
Family business owners usually assume they are on the same page as their chosen heirs. And this is one reason for the absence of a formal succession plan compared to those selling the business outside the family. However, assuming that one of your children or a family member wants to take over your business is a considerable risk. In addition, they may have other plans. Therefore, after identifying a successor, it is crucial to involve them in your succession plan and discuss your long-term goals with them, your family, and key employees. Their input minimizes potential conflict and maintains stability within the business and family.
How To Create And Implement A Business Succession Plan
A. Develop a leadership profile
What qualities should a future leader possess? Identify them to find the most suitable candidates with those qualities.
B. Identify suitable candidates
Who possesses and demonstrates the leadership qualities you are looking for? First, evaluate their experience and education gaps. Then, how can you remedy them?
C. Prepare management and personal development plans
Project the company’s future management needs. Guide the career paths of the individuals to meet these needs
D. Mentor and evaluate candidates
Develop the leadership skills and qualities of your candidates. It may be challenging to do this objectively as a parent. Instead, choose someone else as a mentor
E. Select a successor
Your choice of a successor should be apparent due to your years of experience. If not, have criteria for making a suitable choice. Your business facilitator can also help.
F. Communicate your plan
It is best to communicate your plans, ensuring everyone understands them and their proposed roles. A business facilitator can help with communication and coaching.
G. Manage the transition
It can be pretty challenging to withdraw from daily business activities. Therefore, a gradual business transition may work best.
Family businesses generally fail after the second generation. And this is usually due to a need for more realistic planning. Before transferring your business, honestly evaluate the capabilities and interests of younger family members. Are your family members capable of taking over the company? Do some family members have more interest than others? Is a non-family member a better choice? After making a decision, it is best to start grooming your successor and increase their responsibilities progressively.
Your Ottawa CFP can help you develop a business succession strategy to maintain stability in the family and business. Contact us today.