It’s a seemingly normal evening for Bryson Hopkins* who has spent the workday at his family-owned contracting business. But that night, everything changed for Hopkins. He receives a call from his sister alerting him of the news that his father, and current CEO, has been in an accident. Underneath the layers of worry and grief, Hopkins can’t help but wonder – who will run the family business if dad doesn’t recover?
Family business succession wasn’t made into an HBO series for nothing. The details, aftermath, and factors that can go awry often create storylines chock-full of drama that can affect the health of the business and the family too. For Hopkins, he was lucky enough to learn that his father, and predecessor, had prioritized family business succession planning and, thankfully, fully recovered as well. But for other family business owners and relative employees, the plot doesn’t always have such a happy ending.
So, how can you avoid family business succession problems and keep the drama out of generational transitions? Keep reading to learn the most successful family business succession planning strategies, including a checklist you should start prioritizing before it’s too late.
A Successful Family Business Succession Plan Checklist
When tragedy strikes or retirement arises on the horizon, your family business can’t rely on unspoken words or loose handshakes for future success. In fact, nearly 70% of family businesses fail or succumb to a sale before the second generation has their own opportunity to shine. Moreover, recent research shows even non-family employees often prefer family members to be in the leadership roles during a family business succession event.
But to increase the future success of your family business, simply delegating the top position over to a related successor is just a beginning and certainly not the only step toward success. To facilitate the process and to ensure family business succession plans go smoothly, use the following checklist of tips and suggestions as a guide.
1. Communicate & strategize early
When operating a family business, it’s never too early to begin strategizing family business succession. The decisions that need to be made or facilitated can take years to successfully process. The early stages of family business succession planning will include having discussions with your family, top leadership within the company, and the community of customers or clients the decision ultimately will affect. In the beginning of crafting family business succession plans, these initial conversations can help clarify who’s in, who’s out, and how to best train, place, or move forward with the individual inputs you receive.
2. Be open with your goals & desires
Don’t forget – what worked for you might not work for the second generation of ownership. So, while you may have been able to lead the ship with just one captain at the helm – the next generation might be more apt with a team of leaders instead. Going into succession planning with an open mind is a key factor in ensuring you are setting your business (and family members) up for success rather than keeping to tradition just to say you did so. Being open with your personal goals and desires encourages a conversation on what worked in the past and what new practices may work well with all those involved. Agreeing upon shared views and ideas can be highly beneficial for driving commitment across generations and for building a collaborative roadmap for the future.
3. Set the bar & stage
As your family business succession strategies start to take shape, setting the bar and stage for the future transition is an important next step. Doing so helps to inspire confidence amongst your employees. One way is to promote the next generation family member into a new and similar role prior to leadership. Another approach would be to use an internal leader as a mentor and coach. These two tips nurture familiarity, acceptance, and trust amongst employees for when the transition does occur. These moves also help to communicate clear cut dates so the owner, employees, and family members poised to take the lead can all be on the same page for when and how the transition happens.
4. Use a third-party facilitator
Last but not least, we can’t forget about where we started. Family business succession planning can be intense and challenging and often filled with heated discussions amongst family members. Many lawyers, accountants, financial advisers and business consultants have years of experience helping family businesses successfully outline succession plans. By partnering with a family business succession expert or consultant, you can help dispel any ill-will or arguments that may arise through partnering with an unbiased mediator. These third-party facilitators are beneficial not only for working through issues, but also for making sure your succession plans align with your company goals, profits, and potential for future success.
Working With An Advisor For Smooth Successions
Let’s finish up with some stats – a 2016 survey conducted by the National Bureau of Economic Research Family Business Alliance found that 43% of family businesses are not equipped with a succession plan even though nearly 75% of those companies have stated intentions to pass the leadership on to second generations. Family business succession planning is not only important to protect the future of your business but this planning can also be a competitive advantage.
We want you to be ready, to be intentional, and to be committed to your family business succession plans so that your family and your business avoids the many problems that can ensue. We encourage you to add the action items we have outlined today to both your short-term and your long-term business goals. We recommend that you consider interviewing and choosing a consultant group to assist and be your business partner for sustained success. At Double Iron Consulting, we know family business. From one family business owner to another – let us help you clarify and achieve your goals for smooth family business succession strategies that your family and company deserve.
*names changed for privacy