Rockefeller, Mellon, Vanderbilt, DuPont. A quick study of the United States’ ascendency into the world’s economic center makes a strong case for the enduring legacy of family businesses. While most families that own businesses cannot boast of the net worth or notoriety of the aforementioned clans, those families can create an enduring legacy with a robust and flexible succession plan.
Ideally, a business is founded with the end goal in mind. For some, that might mean a transaction within five to 10 years. For others, that could mean a business that can be handed over to the next generation. Both options should be addressed with a succession plan.
A lack of a succession plan can lead to a leadership vacuum, operational disruptions and potential loss of value. If you started your business without the end goal in mind, make this your top priority. If you did, revisit that goal and make sure it is supported by a robust, clearly defined plan.
Consider the following:
Skill & competency gaps
The next generation may not always possess the necessary skills or experience to lead the family business. This gap can lead to poor decision-making and jeopardize the company’s future. The succession plan should allow for grooming the next generation, transferring knowledge and ensuring they are ready to take over.
Regularly review and update the succession plan to reflect changes in the business environment and family dynamics. The plan should allow for other options if the next generation is not ready, willing or able to step into the leadership role. These options should include sale to third parties or, if appropriate, key management team members.
Emotional attachments and conflicts
One of the most significant challenges in family business succession planning is the emotional attachment family members have to the business. These attachments can lead to conflicts, particularly when it comes to choosing a successor.
For example, multiple family members may feel entitled to lead, or disagree about the direction of the business. Not all family members may be involved in the business, but they might still expect a share of the wealth or decision-making power.
Navigating these waters can be tricky and can certainly ruin Thanksgiving dinner.
Involving trusted third-party advisers to include trustees, wealth managers, estate attorneys, tax adviser, investment bankers or others brings neutral parties to the table. A successful plan can be implemented with the help of unbiased, third-party advisers to ensure the financial health of the business and the strength of the family bond.
Resistance to change
For the founding family member, the business represents an emotional investment that rivals the emotional investment in marriage and parenthood. The family business is part of that person’s identity.
This strong emotional connection can lead to resistance to adhering to the plan. Such hesitation can unravel the business and the family. When this happens, the legacy is often a shell of a company that lost its value.
Recognizing this risk is critical to the founding family member. Even the strongest, most prepared entrepreneur will feel this emotional pull repeatedly and most intensely near the planned transition. This is especially true if the transition is to a third party.
The best way to successfully manage through this emotion is to ensure the success plan addresses life after transition. This means the goal for the family members, post-transition, is clearly defined and documented.
The internal struggle for the founding member to stick to the plan is remedied when the founder is reminded that a transition will allow him or her to pursue other interests and to spend meaningful and intentional time with his/her spouse, children and grandchildren, and friends.
That is the enduring legacy we all seek to create.
A past client, one week before the sale of his multigeneration family business to a third party, asked me, “Bill, am I doing the right thing?”
I reminded him of his goal, defined in his succession plan, to purchase his dream boat and sail an already charted trip he planned with his wife. He smiled and said, “Let’s do it.”
Complete your plan
Your family business might create the next DuPont-like empire, or it might be the asset that allows your children and grandchildren to pursue their own dreams. Either way, a robust, clearly defined succession plan is the way to make it happen. Get started today.
Bill Sorenson is CEO of Heritage Capital Group, a middle-market investment banking and financial advisory firm, and managing director of Business Valuation, Inc., a business valuation firm specializing in comprehensive financial analysis, litigation support and advisory services.
Read about Calvin Modling and daughter Bonnie Modling Fenwick, who lead family-owned flooring business Best Buy Floors Inc., by clicking here: http://jaxdailyrecord.www.clients.ellingtoncms.com/news/2024/aug/23/family-is-foundation-for-flooring-business/