Will you be a Survivor
by Diane Denslow
Studies indicate that only one third of family businesses make it from the first to the second generation yet a majority of family business owners intend for their businesses to continue. What happens? Most businesses are sold to non-family members due to a lack of planning. The following are key areas to address if the family business is to remain viable and in existence for future generations.
Plan for a transition of leadership. A family business owner should begin this planning for transition a minimum of ten years prior to the time they plan to leave the business. Family members that will be taking over the management of the business must be prepared for their respective roles. This means giving them increasing areas of responsibility and the opportunities to develop the required skills so they are ready to take the reins when the appropriate time comes.
Develop both an estate plan and a succession plan. The goal of an estate plan is to minimize taxes while directing the transfer of assets from the owner to the next generation of family members. The estate plan must also take into consideration the family business succession plan. This plan provides the means for the owner to arrange for the next generation of ownership and management of the company. It is challenging for family business owners to create a plan to let go of their businesses because they have spent many years of their lives growing and managing their businesses and they have been an integral part of their lives. Seek qualified advisors to guide you in developing a plan and set a timetable for the implementation of your plan.
Establish rulesby which family members can enter the family business. When bringing family members into the business make sure that there is a clearly defined position for them with distinct areas of responsibility. Discuss with them your expectations for that person in the business. A family member must not assume that he will be given a position unless he has the required educational and experience qualifications. Hire the most qualified applicant for the position. The family member should be paid at the same rate as anyone else in the position with the same qualifications would earn. Encourage family members to get varied experience outside the family business for a minimum of three to five years to broaden their experience.
Establish governance systemsfor the family business such as a family business council. This will provide a forum for family communication and clarification of business decisions. An effective council can help a family business consider business issues that impact the family. These issues can include the future direction of a family business, the employment opportunities that the family business may offer family members, and the criteria for them to be eligible for these positions in the family business. Most importantly it provides a forum to resolve conflicts. By having this forum, family members often have a better understanding of issues that affect the family and can resolve problems before they get out of hand. Finally, a council can help family members to develop a strategic plan, a mission statement and a family code of conduct.
Professionalize the family business. Professionalizing the firm means running the business as a business not as an extension of the family. Many family businesses are characterized by informal practices that inhibit growth and success. It is important that the family business establish rules and procedures to effectively operate the business and clearly defined areas of responsibility for each person in the business.
Set up a Board of Advisors. These are professionals that are not family members. They should have varied backgrounds and areas of expertise to provide the objectivity and insight that is needed. The value of a board is that it can help head off critical mistakes and can also provide a system of checks and balances that becomes necessary as the business increases in size and complexity. The board also helps the owner think through situations before making decisions and can also push the owner if he is reluctant to deal with a situation.
By addressing these areas and capitalizing on the strengths of a family business, a family-owned business could ensure its future survival.
This article appears courtesy of the The Jim Moran Institute for Global Entrepreneurship.