For most business owners nothing is more important in the world than their family.
Most family-owned businesses are the only support mechanism for the whole family. It is critical that you spend time reflecting on the best way to protecting both your family and your business. One day you will be leaving your company. It maybe tomorrow like Christophe de Margerie the CEO of Total that died in a plane accident on 20/10/2014 in Moscow, next month, or years in the future, but that day will come. Disposing of your business will be your last job as an entrepreneur
You have been successful in running your business all these years facing many challenges and overcoming many obstacles — but you have no idea how more complex and challenging it can be to pass the family business on to your children or other relatives. Get it wrong and you will find out the business that has been your livelihood for years may turn out to be worthless.
The first hurdle will be to choose a member of the next generation to transfer your business to. You may be face to the lack of leadership capabilities within the next generation or even worst the lack of appetite from any of your offspring to take over the business. Even if your children or their spouses /partners do not want to take over they may not have the courage to let you know as they would be afraid to offend you by refusing your generous offer. 1/3 of the second generation family businesses are badly managed due to the lack of enthusiasm of the owner or knowledge of management techniques. One of the way to mitigate those risks is to transfer the ownership, in a business trust, appoint your children as trustees and employ an experienced management team that can run the business on their behalf. In Germany most of the “Mittlestand” are owned by families but the family is not involved in the day to day management of the business.
The second hurdle is to put a transition plan in place. Family businesses frequently disintegrate because of the lack of succession plan. To create a successful transition plan:
Your first step — and possibly the most important one — is to create a family committee to collect the thoughts and expectations of all family members on their future involvement with your business. You will have to determine who wants to really do the day-to-day work and who is capable.
Your second step — is to discuss other key business-succession issues, such as your retirement goals and cash flow needs when you leave the business as well as the personal and financial goals of the next generation of management to make sure that the business is able to provide enough funds to fulfill the aspirations of all members of the family.
In developing a plan for the future of your business, you will need to determine who will control and manage the business, and who will eventually own it. These decisions will depend on a variety of factors, such as when you want to exit, goals and financial needs of the family members involved and how you will compensate the children that do not wish to be involved to avoid any unfair prejudice.
You could maintain control over the day-to-day operation of your business, but, over time, you could gift or sell shares to your family members. And eventually, you would also leave the reins of the business to whoever is going to run it.
Your third step — is to understand the business and tax implications of any succession plan, as well as the financial effects of a plan on all your family members. You’ll need to work with your legal, tax, financial advisors to put it in writing and communicate it clearly with all family members.
The third hurdle is to make sure that the employees and the management team accept the change of leadership. I have recently witnessed an employee of one ‘family business’ who reported to the daughter of the owner say:
“She has never done the role she was given. She was not told she needs mentoring. So when I tell her how we need this department to run so that we can win more work and keep the clients we have, she takes offence. I tried to tell her Dad, but he doesn’t like to take feedback about his daughter. So since I can’t get my job done properly, and she won’t learn and our customers are upset when I don’t show up with the right equipment to do what they are expecting because of what she didn’t prepare in advance, then I look bad. Why should I invest my 20 years of experience in a company with owners that are invested in looking bad to their customers so they can look good to each other?”
To overcome this issue you have to listen to your management team, train and coach your children. Just because family happen to work in the business it doesn’t mean that family gets special treatment or that the company doesn’t have to run by the same rules, procedures and systems as any other business.
If legacy is important to you, the big message is, care for your business and prepare it so it is “sellable” and can survive your exit. An asset that isn’t groomed for transfer melts away and the value isn’t captured. It doesn’t matter who owns it.
Are you curious about how sellable your company is and what you would need to tweak to transfer it to your children when you’re ready? Then get your Sellability Score Test now! It takes about thirteen minutes and your responses are kept confidential.
If you have a question or disagree with me please leave a comment on this blog. I will respond promptly so we can have a fruitful discussion
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If you would want to know more on how to transition out of your business and would want to explore what you should do please do not hesitate to call Jean-Bertrand de Lartigue on +44 1656 766 363 or e- mail him at JB@macint.co.uk or visit our website www.exit-planning.co.uk