Succession in family business

Family businesses are facing more difficulties to survive due to a number of factors that have changed the way businesses operate and the way families conduct business.

Our lifestyle has changed the way we perceive our lives, the way our families perceive theirs, and the gap between parents and children has widened. This is especially felt when the time comes to hand over the family business to the next generation.

What if our children are not interested? Or not capable? When do you start involving them in the business and how?

All these questions need to be part of the owner’s plan for a proper succession.

Succession planning should be a priority in family businesses. Statistics show that only 30 per cent of family businesses pass from the first generation to the next, and this figure is further diluted to 11 per cent when it comes to passing the business on to the third generation.

Families and businesses are worlds apart. Like oil and water, they cannot be mixed. But families have always built businesses together… and they always will. However, there can be friction when the time comes for a new generation to take over.

This friction very often leads to either a broken family or a broken business, or both. Not all is gloom however, as these situations can be avoided with careful planning.

How do we know if our children are interested? When do we involve them? What should we do when their ideas are very different to ours?

A good succession plan is based on communication and awareness. We need to communicate with our successors even if this means finding out they are not interested in following our footsteps.

We need to consider differences between generations, how to bridge this gap and how to act in order for our plan to work.

The older generation needs to embrace change. The age difference between generations creates change. There are differences in the ways entire generations live: in their environment, lifestyle, social life, education, politics and culture.

Another hurdle is the children’s spouses who might want to get involved in the running of the business. While this is not necessarily a bad thing, the fact that these people come from a different background might make it more difficult for them to understand the way business is conducted.

It is important to encourage children who wish to continue running the business or to be part of it. Spending more time working closely with, say, their father could help them grasp better reality and the art of doing business.

Very often, the senior entrepreneur does not have the time to sit down and explain business tactics. But through a hands-on approach, the younger generation can better grasp the concept of doing business.

Management roles need to be passed on to the next generation at a young age, letting them take calculated risks. Those who do not take risks are not progressive.

When family members gain the experience and knowledge on how to run the business, they are usually better managers than any other third party.

Good corporate governance is crucial, especially when family members do not have the necessary skills and third parties need to ‘take over’. Enterprising third party executives are rare to find. These people need to be responsible, efficient and trustworthy people.

Having such a set-up, family members who continue to take an active role in the management structure will receive good remuneration and bonuses, while those wishing to take up other non-competing businesses or employment can still enjoy their share of profit from the business.

The ultimate aim in the succession process is for the business to be successful. Therefore, before making a final decision, the family should feel united.

A common aim should be to look ahead – towards a successful succession process that can take the business towards, possibly, the third generation.

The company can then look to expand its horizon to other countries.

With internet and IT the world is becoming smaller and more businesses should consider opportunities beyond our shores.

We have successfully managed to survive throughout centuries without any raw material except for stone and human resources. But we have the most important asset – being creative and having the determination to survive.