Tips for Successful Family Business Succession

Family transitions are normal and expected but when a business is involved things can get complicated.

Transitions happen when parents, most often the owners, are unable to do as much physical work or want to pursue activities outside of the business, or when kids are having their own families and careers off–land and parents realise they might not take over as once expected.

1) Succession planning is not the same as estate planning

Succession planning in family business is about planning for handing over the management reigns to the next generation be it the kids, other members of the family or non-related managers. This may lead into conversations about estate planning and the wishes of the business owners, often the aging parents as Directors.  But it doesn’t have to be so.  Estate planning is about what happens after death. Ideally succession planning is what happens before death to ensure the business’ future.

2) Many family business avoid succession planning 

Talking about letting go of control of a business built up over many years or decades is a painful thing. Facing scenarios that may involve sale of land or long held assets, employing new management and confronting the financial position of the business can be a reality check for families used to living a certain way, and who don’t openly discuss business matters.  Succession planning suggests difficult conversations with family members.  If avoided too long, it can be too late and consequences include internal family conflict, a business with no-one at the helm, resulting in financial loss, asset deterioration and staff leaving.

3) The needs of the business and family are different

A business is a vehicle to help family owners achieve certain things; income for owners, employment for kids, a way to stay in a community, or wanting to continue tradition or innovate.  A business needs certain things to succeed, but a family does not need a business to be a family. Discerning the difference between family needs and options and business needs and options is a good place to start.

4) Be careful what you wish for

Family members close to the business can assume parent owners have a lot of assets and wealth that may one day become theirs.  But business owners have high responsibilities to others first, such as banks, creditors, paying staff entitlements and ensuring the business can fund their retirement and health bills. Some businesses rely on high debt levels to trade and are geared in such a way that is not obvious to an outsiders’ eye.  If a Director hands over the reigns to the next generation without transparent documentation or discussion, family members can inherit debts and more than they can handle.

Things successful family businesses do to navigate these issues include:

  • Holding regular formal family business meetings;
  • Engage a skilled and independent facilitator to run a family meeting.  CVC offers an Innovative Facilitation service.
  • Establish an Agenda and business financials for discussion;
  • Everyone in the family business has an agreed role and can contribute, even those who are not hands-on in the business;
  • Take minutes of family meetings to record decisions and actions agreed and for future reference and sending to members who can’t attend;
  • Seek financial advice about scenarios that affect the owners’ retirement options.

Other resources:

  • Innovative Facilitation service
  • GRDC factsheet
  • Family Business Australia

 

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