A succession plan is a long process. It is significantly more complex than preparing a will or buying an insurance policy. And within a family business it is fair to say that every succession plan is unique.
If the tax, accounting, people, legal, insurance, relationship and business issues are done properly a family in business can transition well and keep the family together.
Step 1 – make sure the business is worth succession
A common position in a family business is that the children are not interested in running the business. And sadly the primary reason why is that the business simply does not generate enough profit to generate interest, or the governance of the business is so poor that the next generation simply are not interested in the family business as a career path.
Ensuring that your business has robust governance in place with tight financial discipline is the cornerstone of succession planning. And if this occurs, and the children are still not interested, the current generation will enjoy higher profits and a higher sale value anyway.
Step 2 – identify what the owners need to exit
Quite often the family owners will have a desired price point to allow for a succession. This price point might be the amount simply needed to fund the lifestyle of the current generation or it might be a minimum amount needed to allow for gifts to children or charity.
Whatever the case having a difficult and honest conversation, even with yourself, about the minimum needed to ensure succession is important to getting a start on succession planning.
Step 3 – ask yourself
Do you want the business to transfer to the next generation? For some people the business is the identity of the owner and directly related to the owners skills.
If you honestly want to run the business well into your retirement your succession plan should reflect this.
Step 4 – ask the children
If you have not yet had honest conversations with your children about the succession now is the time to do it. And simply making a flippant comment one day is not enough to discuss the succession.
The discussion on succession should happen on many occasions with different family members. For some families in business this happens regularly through family AGM’s or quarterly meetings and for some families this is evolving. However a detailed career discussion for the family members working in the business about the transition is a difficult and important step.
Step 5 – identifying missing skills
We often hear that the children do not yet have the skill to run the business. And for many families in business – that is the case.
If you have a viable business where the next generation does not yet have the skills to run it consider engaging additional development courses for the next generation in areas that their skills set is weak. Alternatively look around your current team for high calibre people who could take over the business with the family appointing a Chairman to engage with that person.
Step 6 – identify strategies to succession
The different forms of succession and transition all have legal and tax risks associated with them.
Engaging a team of advisors to discuss the options will help you craft a strategy that gives you and the next generation the best chance of success.
Step 7 – communicate, communicate, communicate
The succession should be a long term process. And a plan that is developed over a long term with significant discussion is far more likely to succeed than one that is prepared and finalized over a 3 month time frame.
The communication and documentation of the plan and engagement of all family members is critical to ongoing family harmony and a successful exit.
At Westcourt we only help families in business. This sole focus gives us a depth of knowledge about creating businesses that are both worthy of succession and have a sound succession plan. Our collaborative approach with investment advisors, insurance agents, business coaches, lawyers, bankers and auditors allows us to give a commercial business family the best chance of a successful transition.