How to plan for succession in a family-run business usually begins with one member of the business managing the succession planning. Succession in most family-owned businesses usually works around the assumption that the youngest member of the business can effectively run the business as the first predecessor did. But this concept often fails to account for several factors that may affect succession. It is important for business owners to understand these factors and plan for them accordingly.
- The first factor that determines if your business will have a successful succession plan is the ownership structure of the business. Typically, a family-owned business will be one where there is a limited partnership (LTP) or family corporation (FCO). Larger family-owned companies usually have direct family ownership (FOUL) or simple ownership without a corporation.
- Another factor to consider when developing your succession plan is the size of your company. Smaller family businesses tend to have weaker boards of directors and fewer corporate shares. Larger companies with many family members on the board typically have larger Board seats and more corporate shares. The next generation of leaders may come from the LTP or FOUL categories. Larger companies may also use a blend of these strategies. It is important to understand that the size of your business determines how you plan for succession.
- One additional factor to consider when developing your succession plan for family-owned businesses is whether you need to restructure the business structure in order to move forward. Some companies have been able to continue trading for years, even when they have a new leader. If you are looking for ways to continue business success, it is important to determine whether or not your business needs to restructure.
- When considering how to plan for succession in a family-owned business, you should also consider how much input you will need from your second generation. You should explain to your first and second-generation who will become leaders, how their positions will be terminated and when those positions will become vacant. This information will help you to make the transition as smooth as possible. It will also help you to provide guidance for your junior employees. It can be difficult for your junior employees to make transitions, but it is imperative that your second-generation understands the importance of your succession plan.
- Finally, you should have a succession plan prepared in the event that an immediate or highly expected exit occurs from the business. A resignation occurs, for example, when a business owner dies or a business changes owners. A resignation announcement should be made to all keyboard members and key employees. The transition plan should include information about the succession plan and the new owners’ expectations.
- Knowing how to plan for succession in a family-run business also includes understanding the transition process. It is a good idea to let go of employees who are not performing as expected. This is the first step in the succession plan. It is also important to let go of clients and vendors with whom you no longer work or have an ongoing relationship. You should also not force a change in the ownership structure of the business if it does not make sense for you and your successors.
Planning for succession in a family-run business should be an integral part of your overall business planning process. You should have a succession plan drawn up that outlines the succession hierarchy as well as explaining what roles and responsibilities each member of the succession is responsible for. You should discuss how you will deal with the departure of key family members and how you intend for them to transition into the new positions. It is also important to develop a strong succession plan that covers key projects, goals, marketing strategies, business expansion plans, financial forecasts, and more. When you understand how to plan for succession, you are better equipped to manage the business affairs of your company effectively. It will also help you to minimize the impact of any unexpected situations and to make sure that your business runs smoothly in the years to come.
