How to navigate a family business succession
Plan for successful succession
Succession. The power struggles and power plays enmeshed in succession have played out everywhere from noble ancient dynasties to fictional families brought to life on a Hollywood sound stage.
History and Hollywood agree on one thing: Succession can be messy.
Here at The Family Business Coach, we know it doesn’t have to be.
What is family business succession?
Succession isn’t an event, it’s a process that takes years of planning, discussing, and preparing. Family business succession is the transferring of ownership, leadership, and management from one generation to the next. It’s the sum total of years of work and decisions, preparation and intentional communication.
And frankly, for most family businesses, it’s the litmus test for their legacy.
Only one-third of family-owned businesses will successfully transition ownership from the first to the second generation and only 13% make it to a third generation.
Your ability to smoothly navigate the complexities of a major family business transition will come down to two key factors: 1. Your ability to communicate and 2. Your level of preparation.
Communicate across generations
The Harvard Business Review recently reported that 25% of failed transitions occur because the succeeding heir was unprepared.
One of the biggest challenges when it comes to succession is a breakdown in communication. Poor communication equates with poor preparation. Family businesses that are able to establish clear lines of communication and a comprehensive succession plan achieve the most successful successions.
Communicate expectations
Another common pain point for family business succession comes when the founding generation is reluctant– or downright unwilling– to relinquish control to the next generation of leaders. Actions can scream louder than words. A leader's unwillingness to transition from power can communicate a lack of faith and trust in the future leaders. This can and does create major rifts in tight-knit families.
Communication instills confidence, and a well-designed succession plan will prepare each generation for the transition by creating actionable items to reconcile any deficits in skills, abilities, or alignment.
First or second generational leadership is more willing to accept the eventual finality of succession when they feel confident their legacy is passing into the capable and prepared hands of the next generation of leaders.
How do I create a succession plan?
A successful succession plan is built on a shared long-term vision the family has developed together with clear, attainable goals and objectives for the business.
When creating a succession plan, decide in advance the importance of continued family involvement in leadership and ownership. Establish retirement goals and cash flow needs of retiring family owners. Consider the current preparation of the next generation, and formulate a plan that can develop future leaders as they prepare to take the reins.
Holding regular family meetings is an excellent way to assess the readiness of the retiring and rising generations. Family meetings create a safe and respectful venue for fostering ownership alignment. Regular family meetings open the door to a habit of healthy communication that is the lynchpin of successful succession.
Where do I start?
Succession planning is a huge component of running a family-owned business and is a task that can feel extremely daunting. Here are a few questions to consider as you begin building a formal succession plan.
Do you understand what is driving the value of your business?
Do you have a plan for transitioning key relationships to your successor?
Can you clearly communicate your succession plan? Does everyone understand the plan?
Have you put your plan in writing?
For a more robust succession checklist, view this example we use here at The Family Business Coach.
Hire a family business coach
Finding a trusted third-party business coach might be the best investment you’ll ever make for your legacy. A skilled family business coach understands the intricate complexities of the succession planning process as a whole, and can perfectly fine-tune a plan that will continue to impact your family and your enterprise for years to come.
If you’re ready to take the next step in succession planning, contact The Family Business Coach today.
