Succession planning can really help to secure the future of your business.
When you run a family business, saying goodbye to something that has been integral part of your life is complex. It is perhaps not surprising then that many family business owners choose to delay their exit plan, often until the very last minute.
According to PWC’s 2017 Family Business survey, just 13 per cent of family business owners have a robust, documented and communicated succession plan in place. That’s despite the fact that nearly two-thirds of this cohort will hit retirement age in the next decade.
Succession planning is not simply a ‘changing of the guard’. Instead, it is creating the platform for the next spurt of company growth, looking at not only current activities, but the future steps needed for success. This is a problem for all kinds of businesses, but it can be particularly acute for family-run companies.
Here, Peter Jenner, a speaker at Vistage, gives his tips for successful succession planning in your business.
Establish the aspirations
What is your view of the future and how does that compare to your children? There is usually a disconnect between the two. Of course, you want the business to survive and thrive, whereas your children may not have the same passion or emotional attachment.
With some baby boomer founders holding on to control of the family business for so long, younger members of the family may have already moved on to build businesses or successful careers of their own.
Be honest with yourself
Ask yourself a hard but important question, ‘Do I have a job or a business?’
This boils down to how essential you are to the day-to-day operation of your company. If you are the only one with the skills, knowledge, contacts and experience, then you don’t really have a business to pass on; you simply have a job that no one else can do.
If you are the business and the right succession frameworks have not been put in place, the pragmatic decision may be to wind the business up.
Develop a strategy
Do you have a plan in place if a member of your family doesn’t want to take the business on? The best way to avoid such an outcome is to focus on strategy, ensuring that everyone involved in the business has a clear idea of where it is heading.
Think of it like a ladder. It takes us from where we are now to where we want to be. But to make it work, you’ve got to put the ladder against the right wall.
Once you have the ladder in the right place, you can decide what future skills are needed, assess the current situation, and plan accordingly.
Fill the capability gaps
What can happen in a family business is that the leaders look at the skills of the people in the family and design the organisational structure around those skills. This leads to capability gaps that can leave businesses exposed.
“You need a minimum of two years to get a succession programme to work, normally three or four”
It is only with a clear strategy in place that you can address the next challenge – selecting and developing successors and thus filling those capability gaps. Selecting a successor should be based wholly on merit, but this is not as easy as it sounds. The worst thing a business owner who is also a parent can do is focus on ideas of ‘fairness.’
Consider a business owner with two sons. He chooses to split the business evenly between them, giving them both 50 per cent of the shares, because he thinks this is the fair thing to do. If one son is more capable than the other, with a vision for the future of the business, he may be hamstrung by having no overall control and doomed to power struggles with his less capable sibling.
Have honest conversations
Sons and daughters may be reluctant to explain to their parents that they don’t actually want to run the family business – sitting down and forcing them to have that conversation will lead to a more honest appraisal of their own skill shortfalls. If merit demands, it may be best for the business to put it in the hands of a single sibling, compensating others with money or property if ‘fairness’ is still a concern.
If a succession plan must look outside the family, then you’ll need to concentrate on building a talent pool. Appraisal, recognition and reward systems should be aligned with company strategy. This allows potential successors to understand what they need to do to deliver the goals of the company and to prove their own capability.
Don’t leave it too late
It is never too early to begin building a strategy for succession. We’ve got a demographic time bomb on our hands with more people set to leave the workforce than enter it over the next few years.
You need a minimum of two years to get a succession programme to work, normally three or four.
Ageing leadership is the elephant in the room, which is problematic if no one is seen to be addressing it – succession plans should not remain a closely-guarded secret.
Everybody in the company can see the owner getting older and you don’t want to leave them wondering what happens when you leave the business. Key staff may look at the son or daughter, see that they are ill-equipped to take over the business and so start planning their own exits.
Further reading on succession planning