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Succession planning is one of the most sensitive issues, and COVID-19 appears to have concentrated minds in this area.
Topics such as succession can be emotional, which makes them difficult to navigate and, as a result, tempting to avoid.
The 2021 PWC Family Business survey shows that 23% of Irish family businesses have a robust, documented and communicated succession plan in place, compared with 30% globally.
Time for clarity
Running a family business can be daunting, frustrating and rewarding. Among the most difficult discussions for any entrepreneur to have with their family, is succession planning. Yet, such an engaged discussion is like a gift one can give to their children, siblings and employees.
A lack of clarity in management leads to dysfunction. Most families do not want to have conversations about mortality or illness. Bake in the family pecking order with discussions about money and you have a recipe for procrastination.
Failure to discuss such matters can be both financially and emotionally devastating. It is simply short-sighted and selfish not to engage in such planning but it doesn't have to be that way. Creating a succession plan is not unbearably difficult. Here are some steps business owners can take to create a succession plan:
Set goals for ownership
During succession planning in family business, different family members can have different visions. For instance, while some members might want to sustain the company for future generations, the younger generation may have no interest in being involved in the business.
Additionally, when faced with challenging decisions like whether to sell the company or stick it out, only half the family may want to cash out.
Different generations can also have different expansion plans, with the first generation wanting to re-focus on traditional business operations, while the second wants to pivot towards new industries.
Every business should have a written strategic plan. Within the strategic plan, management can clarify its growth plan, financial targets and transition of ownership. Then, you need an estate plan. A strategic plan and estate plan can and should be built in parallel (although a strategic plan is an evolving, fluid document). Take care in settling any family disputes, as they will only be magnified should the business owner pass.
Get the best advice
Having the right accountants, solicitors and managers in place, is vital. Part of a family business succession plan may be the sale of the company from one family member to another.
A family-to-family business sale offers many options, such as choosing a full versus discounted sale price, making instalment payments, or even gifting a business. These options provide family members with opportunities to structure a sale that may way work best for the business and the family. However, be sure to address the pros and cons to these strategies with a solicitor and financial advisor before finalising the sale.
Also, conduct an evaluation of your management team and assess the skills of each manager, or hire an outside firm to study their emotional intelligence and skill level. Create a grid and grade based on the managerial competencies.
Be fair and make them work!
Just because someone is part of the family, it doesn't mean they are the best person for the role. A level of entitlement, especially between the first and second generation, can arise when selecting key company roles. Your goal is to avoid backlash from family and also choose the best candidate for the position.
A company should develop internal training programmes, educational standards and results-based qualifications for candidates to be considered for leadership positions. With clear-cut systems, staffing key roles become about being qualified, not just being part of the family.
Also, make children work elsewhere for at least five years before bringing them into the business. Children of founders or multi-generational family members face even more scrutiny and need time to mature.
Train your managers (especially senior managers) on how to hold people accountable to specific performance outcomes. A methodical process will minimise perceptions of favouritism.
Identify the successors
Identify successors – both managers of the company and owners of the business. Then, identify active and non-active roles for all family members.
Have frank and confidential conversations with your top people about their career paths. Make certain that you have provided incentives for future senior managers to stick around. Consider hiring a coach to help develop their skills and ensure that developing new leaders is a core competency in your company.
We have a plan…
By following these key steps relevant to almost all family businesses, the company can create a viable succession plan, provide for the financial independence of the retiring owners, and position the business for continued success and growth.
As they say, a journey starts with a single step. Don't be afraid to have meaningful conversations about your succession plan. Then, go find the professionals that can help you put your plan into action.
Family Business Ireland is an information and support service for the founders, owners, next generation managers and professional advisors of family businesses. For over twenty years Plato has directly facilitated hundreds of family businesses throughout Ireland to successfully manage the issues of succession, legacy, transference and continuity. |
+353 21 4211433