There’s no getting around it. Planning for the future of your family-owned business is hard. The careful balance between family expectation and business strategy requires practical, financial, and emotional intelligence. Find out what makes family business succession planning especially difficult, and what you can do to make it easier for everyone.
Balancing Your Family Owned Business’s Practical Needs with Heirs’ Abilities
Your family-owned business may be your largest asset, but it also a company. As much as you may wish that your favored child will step into your shoes when you retire, your business may need something different. Every one of your employees, including the ones related to you, have different strengths and abilities. If you want your succession plan to be successful, and your family-owned business to thrive, you need to put your company’s needs before your feelings about which heir “should” be taking over.
It’s important to remember that ownership and management are not necessarily the same thing. Your family-owned business could employee C-suite employees with the talent to push your company forward and still give your heirs the reins when it comes to corporate decision making, and stockholder disbursement. An independent business consultant can help you and your succession planning team assess key employees’ strengths and abilities, so you can position the right people to step into the role.
Even if your natural heir is interested in taking on day-to-day operations after you retire, they may not have the training and technical skills to do the job. When that’s true, working one-on-one with an executive coach now can provide the professional development they will need to be ready when the time comes to transition.
Preparing Owners, Investors, and Inheritors for Financial Transitions
Succession planning in family owned businesses also dips its toe into estate planning and financial planning arenas. An owner-operator, you may be relying on the success of your business to pay for retirement. However, if you are planning on being bought out of your company when you retire, you will need to do some advanced planning to be prepared for the financial transition.
Remember that, if your family owned business has been successful, your share of the company may be worth thousands or in some cases millions of dollars. Business owners often underestimate the value of the business they have built. Part of your family business succession planning should be hiring an outside appraiser to value your business and put a price tag on your ownership interest.
Once you have that number, it is likely that up and coming inheritors won’t have the funds immediately available to buy out your interest. You may be willing to retain ownership until your death and then distribute it as part of your estate plan. However, if you will be living off that interest in your twilight years, your successor will need to seek out investors and make financial planning decisions now to be ready to buy your shares when the time is right.
Using Emotional Intelligence to Address Assumptions in the Family Business
No one fights like family. When you are discussing succession planning among siblings, cousins, and others set to inherit, you may find family drama creeping its way into your strategic planning meetings. It is important to come at these conflicts with emotional intelligence, validating your family members’ feelings while emphasizing the need to put business priorities first. If you struggle with managing the strong personalities within your family, or if the idea of succession planning raises conflict in the workplace, an outside consultant can help by facilitating the succession planning process, addressing family members’ emotional needs, and helping to resolve the conflict.
There is no question that succession planning in family owned business is hard and requires a careful balance of business savvy and compassion. By starting early, and addressing the practical, financial, and emotional needs of everyone involved, you can navigate the stormy waters and emerge with a strategic plan that provides for you, your heirs, and the success of your family business.
David Stanislaw is an organizational development specialist with over 30 years’ experience helping family business owners plan for the future of their companies. Through business succession planning and executive coaching, David helps family owned businesses through transition to new leadership after their owners retire. Contact us to meet with David to start building your family business succession plan today.