Everyone knows the value of family. Strong families provide support and understanding. They work together to ensure that the individual members thrive and have the best opportunity to succeed in life. A strong family business is often rooted in the spirit of trust and cooperation that family life provides.
But family life is never plain sailing.
Rivalries and competition can create tensions or conflict. Parents and children may have differing priorities or siblings may not always see eye to eye. These ups and downs are typical of most families and with a little bit of compromise can be resolved.
The successful family business owner will always need to be mindful of family dynamics, particularly when it comes to succession planning. According to PWC’s Global Family Business Survey 2021, just 51% of family businesses have a documented vision and written purpose statement and only 30% have a succession plan. These figures suggest that uncertainty about the future is a common feature across many family businesses.
So how can a family business owner ensure that succession runs smoothly? How can a family business embody the all-important trust and cooperation rather than fall victim to the inevitable agendas and infighting?
The UK-based Institute for Family Business (IFB) recommends several topics to consider when thinking about successful succession planning. Communication is key to both a healthy family life and the running of a strong family business. If you would like one or more members of your family to take over the business, it would be a good idea to talk to them about it. Are they interested in running the business? Do they have ideas about the direction it would take? Are there questions you have about their motivations? Making sure that these conversations take place early could head off problems later.
One outcome of these honest and open conversations may well be that you are able to identify suitable candidates for future management roles. Another outcome may be that you realise early that there are no suitable successors in the family and bringing in outside management or selling the business may be better options.
Whichever route you decide to take, if you establish your strategy early you can start to plan.
Those that decide succession is best kept in the family can begin to prepare their future managers for taking over the business. Successor candidates could take minor roles in the company or engage in work experience. Roles like this would allow them to see the company from multiple angles before they take on a larger job. They could also start to think about fitting their educational choices around the needs of the business. Industry specific degrees could be suitable or more generalist subjects such as business, management or accounting may suit.
Business owners often recognise that there are considerable benefits to keeping things in the family. Customers and investors will be confident a company run by an owner family champions longevity and has management that is personally aligned with corporate success. The presence of an owner family conveys a certain commitment to long-term thinking and the future stability of the company.
For those that decide family succession is not the route they want to follow, there are alternative considerations. Does the family want to remain in management or step back to just ownership? What percentage of the company would the family want to retain? If outside managers are hired, will the family still be involved in key decisions? Thinking these choices through carefully will pay dividends both for the company and the family.
A robust system of governance is another useful topic to consider when running a family business. Family firms can develop a unique organisational structure with informal processes sometimes dominating operations. Managers outside the family may confer with certain family members over others. Individuals from the family may develop outsize roles in running the business through, for example, relationships with key customers. Or key decisions may be made away from the oversight of the board. The establishment of professional governance with defined processes would ensure that the company benefits from established corporate practices while still retaining the strengths inherent in family ownership.
At London & Capital, our advisers can help business owners create and manage a succession plan that ensures the future health of the company and allows your family to flourish.