According to Price Waterhouse Cooper’s 2023 U.S. Family Business Survey, one-third of family businesses have a succession plan in place. Is this the case for your family business? A 2020 Harvard Business Review article on family businesses affirmed that “the best business succession hand offs are often years in the making.”
When the plan is to transition the business to the next generation, all too often, the mindset is to just hand of the reins. Having worked with multiple generations of family businesses, the first stage of effective planning is to incorporate the business succession planning into the family’s estate planning, understanding that to do it right, time needs to be invested with a clear strategy of succession factors in place.
It starts with asking some key questions related to your business, including:
These questions will be answered when you have put in place the right business continuity plan.
With estate planning, we then ask the question, “How do you want to treat your heirs…equally or fairly?” This question is especially important when you have multiple next-generation heirs, yet not all are engaged in working in the business or have an interest in working in the business. This question helps clients shift their perspective to thoughts about who should really get what, why they deserve to get what they get, and whether they can handle it once they get it.
When estate planning with a family business, answering these questions can help begin the process of estate and succession planning in unison:
Preparing to Succeed: Making sure you have people with expertise and experience, who are engaged in the business culture is paramount feeling confident about your succession plans. Knowing these key people, family members and nonfamily members, helps you determine the pace of your business transition. Like our blog about my preparation for the Boston Marathon confirmed, you can’t and shouldn’t just go out tomorrow and hand over the business. You need to prepare with intention, clarity, and the proper protections in place.
Employee Collaboration: When more than family members help make the business run smoothly, it is important to approach the transition with a collaborative spirit in mind. It takes attention to their mentoring, coaching and any cross training that needs to occur. There comes a time when you can’t and shouldn’t perform all of the functions you may currently be managing. Especially if you are the rainmaker who is supposed to be continually filling the top of the funnel, how will you set your company up for success by engaging others in being the rainmakers along with you?
Client Engagement: Another aspect to consider is methodically planning how you introduce your team or next generation to new or existing clients that only know you as the company. It takes discipline to stay true to the process and the people involved in the success of the business transition. Clients and customers should know that this is happening over time, not abruptly. Knowing that there is someone to service them who has been a part of the company, training, learning, and growing in knowledge and ability builds confidence and trust. When you have been disciplined in engaging clients in making the transition, they should be comfortable with the changeover when it fully occurs.
Keep in mind that transition is not an entitled transaction. Just because a son or daughter is working in the business doesn't mean you are obligated to succeed it to them.
Start transition planning by leading the company strategically with the same disciplined approach you incorporated when you first started and built the company.
Matthew Hudack, CLU, ChFC
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