In over thirty years advising family businesses, the most successful succession plans I’ve seen have been the ones where there was solid stakeholder engagement – in other words – good communication within the family. Even if you think everyone is aware of what is going on and generally on the same page, don’t leave things to chance for people to fill in the blank spaces. Fill them in for them.
Often there will be an “heir apparent” to the family business – someone that has worked in the business already. But do you really know the personal (and business) vision of all family members? Have you taken the time to talk to ALL family members to ensure they’re on the same page? The risk of not doing so is a potentially unhappy sibling which could lead to a lifetime of bitterness and resentment.
A good place to start is to actually ask all family members about their personal vision.
- Do they actually want to work in the family business?
- Do they want to own part of the business or are they happy just working in the business?
- Do they want to be the business leader?
- Are they happy for their siblings to be part of the business?
- Do they want to own all of the business, not just part of it with their siblings?
- What are their future plans for the business? Do they plan to grow it? The implications of this can be significant.
- Do they want it to stay within the family?
- What do they think the purpose of the business is? Is it to accumulate wealth for the family or is it to fund lifestyle? Alternatively, is it to provide careers for multiple generations of family members and to pass onto the next generation?
When talking with business owners I like to obtain the above information by way of a succession planning questionnaire and have each family member complete this. If you intend to have multiple family members owning the business, make sure there is cohesion around investment decisions and dividend policy. In my experience, this is where things can go awry. Let me give you an example.
Sibling one sees the future potential of the business. They want to grow it and invest all of the profits back into the business for the strategic growth of the business. Sibling two is also happy to grow the business, but wants (or needs) the monthly dividend cheque in order to fund their lifestyle. You can see that the disconnect between the personal (and business) visions of each sibling will end up as a recipe for disaster.
Another of the potential areas for disagreement and resentment can be if one sibling feels another sibling has got something unfairly. In other words, if one sibling feels another sibling has been “given” the business or at a significant discount.
So, make sure there is total transparency in relation to price. Get the business valued by an independent party so that everyone knows that a market price has been paid, even if most or all of this is vendor financed by the parents transferring the business.
As in any relationship – communication is always the key.