In our last piece we talked about the challenges involved in transferring a business to the next generation. With time, communication, goal setting, and hard work, these challenges can be overcome if this is your goal as a business owner. What are some of the practical steps you can take to prepare early for this eventuality?
Change Is Coming
If you’ve built a successful business, you’re no stranger to hard work and sacrifice. Eventually, though, you will want to transition to retirement and pursue other goals, whether personal or professional. If your goal is transferring your business to your children, you should begin this process as early as you can.
Too often younger family members are woefully unprepared for their new roles and do not have the full support of their siblings or other relatives. Sometimes other family members are surprised by these changes and throw up challenges to a transition. There are good reasons why a minority of family businesses transition to the second or third generation.
Early Steps to Take
The first step is to decide what the transition goals are. This may sound obvious, but too many business owners make large assumptions about the future of their company without really understanding their desires and needs or the desires and needs of their children.
Parents are not required to transfer the business to the next generation. They can sell it to an outside party or prepare someone internally to take over the business if that better suits their needs and the needs of the company. Your financial future depends on making the right choices, and your children must understand that is a primary goal that must be met.
Full communication with all family members is the next step. It can be very hard for people to be entirely honest with people they love and depend on, especially when money, self-worth, or family relationships are involved. If you intend to transition the business, you will push through your discomfort and have those hard conversations.
Everyone in your family will have concerns about how the finances and management of the business will be split, and these are valid. You can’t begin to plan until you know what potential problems are lurking and come to mutual agreement about desired goals. Do not assume that your kids will work out everything amongst themselves.
Develop Successors Early
The earlier you begin to prepare your children for their future responsibilities, the more skills and relationships they can develop to be successful. Ideally, if transferring your business to your children is a key goal for you, this should be done in childhood by patterning values like cooperation, hard work, honesty, and integrity and minimizing sibling rivalry or jealousy.
Once children are old enough, they can begin working in the family business in lesser roles and then be given more responsibility over time. This will give you the opportunity to observe what their natural skills are and develop them for key positions in the company – or it may cause you to realize they are not suited for leadership at all.
When you have a better understanding of who your children are as people and workers, you can insert them into different positions that will give them necessary experience. With early enough exposure, young people can get a very good idea of the mechanics of the business and the ins and outs of the industry. They can develop the skills and personal networks they will need to thrive in management without you. If they need more training, there is still time to pair them with a mentor or enroll them in programs where they can get the education or certifications they need.
Create a Family Council
Creating a family council or board that will keep the family connected so that a network of support, communication, and accountability develops naturally. Not every child or family member will want to work in the family business, given the opportunity. A family business with multiple shareholders will all be affected by the decisions made by the family members who are in leadership, though. The family council can be a place where family members can continue to discuss their values, needs, and goals as the business matures or weathers different challenges.
We’ve said this repeatedly, but it remains true: the earlier you begin the transition planning process, the better the outcome will be. More time will allow you to make considered choices and involve everyone fully in the important conversations that must happen. Owners of family businesses should be carefully assessing their children’s talents, skills, and desires years before they want to transition.
If you would like help in preparing your company or your family for changes that are coming, Prometis Partners is here to assist. We know the challenges family businesses face, and we have been able to help many businesses pivot and thrive to meet them. Are you thinking of transferring your business to your children? Call us!
