Taking a close look at several businesses operated in a country, the true picture of the result is that they are mostly family owned involving either nuclear or extended families. This clearly shows that these businesses are the country’s economic powerhouses that to greater percentage controls local, national to global economies.
With all that said, there are several studies done on family businesses that is raising redflag. According to Conway Center for family business research, more than 30% of all family – owned businesses survive into the second generation. Twelve percent will still be viable into the third generation, with 3% of all family businesses operating at the fourth generation level and beyond. These findings requires a lot of close attention inorder to tackle the many arising issues from these businesses in terms of challenges faced, succession planning to ensure development and survival of family businesses from generation to generation.
Family businesses has its own set of unique setbacks they face in the journey of growth and development from stage to stage, below are some highlights of the challenges faced:
- Sibling /family rivalry – discomforts and misunderstandings between family members either sibling/sibling or sibling /parents or in-laws always create a diverse political situations that works to the downfall of most family businesses.
- Overlapping of roles- In most cases roles and responsibilities are not clearly outlined according to abilities, this causes overstepping on others duties and inconsistencies in undertakings.
- Lack of talents – most of family members are always involved in the management& running of the business even without emphasis on particular abilities and skills required to perform assigned task, they rarely hire external employees with the talents to fill various position as they feel threatened by them.This has consistently threatened survival and development of many family businesses.
- No succession plan- Some owners of the family businesses find it very unnecessary to think that at one time they would die, retire or encounter some disabilities relieving them from management of the business, many owners fails to train, mentor or prepare successors for the next generation of the business hence most of them rarely survive beyond third generation.
- Resistance to change- The older generation who are mainly the founders of the family business always feel comfortable with maintainance of status quo on style of operation of the business and mostly frustrate efforts by the younger generation to bring about new spirit of change on how business affairs are handled.
- No clear exit strategy – Plans on how to close down the business or sale it when situation arises is always not considered by most owners of the family businesses.
- Controlled opinion and vision- Running of most of these businesses are always entirely family affairs and external skills and opinions of employees are rarely considered. This always excludes diversification of opinions that might grow the family business.
- Separation of family and business – The balancing act of family and business affairs has always been daunting task for several family business.
- No clear employment policies – Proper guidelines on how to hire employees to various management positions remains to be an issue as most family members are always engaged in some key positions even without proper academic qualifications, skills and expertise required thus offering less interms of their role performance.
- Lack of long-run strategic plan – Designing business model and mechanisms that adopt changes for improvement has proved to be difficult as various generations remains comfortable with what is successful to them without consideration of the next generation.
- Lack of training –there is still laxity on training and development of employees to fit various rapidly changing roles and tasks thus hindering space for business growth.
- High-turnover of “outsiders” employees – employees who aren’t family members always feel greater opportunities favors family members only thus making them sidelined in most of management roles and decisions forcing most of them to bolt out of the business due to frustrations and sidelining.
Overcoming the challenges
- Unwavering mutual trust – family business must uphold spirit of trust just like any other partnership business, everyone should be given space to perform his/her duties in line with agreements to reduce possibilities of conflicts.
- Consider external perspective – Accommodating external views from advisors or even non-family staffs brings fresher and unique outlook in addressing several issues in running the business.
- Effective communication boundaries – proper communication structures minimizes conflicts and provide appropriate avenues for addressing issues.
- Eradication of nepotism – Opportunities should be offered fairly to everyone and every household based on merits and abilities so as to create sense of ownership of the business and lower political temperatures.
- Employment policies- Appropriate guidelines should be established so that anyone involved in running the business affairs must meet requirements ranging from academic qualifications, talents and expertise before joining the team, this will boost competence in the business. Being family member shouldn’t be considered as automatic qualification even without being eligible to set guidelines.
- Succession planning – It’s never too early to start succession planning, family businesses can involve experts and advisors to see them through as well as engaging family members in the same for smoother transition and future survival of the business in the next generation.
- Operation agreement – understanding should be set outlining duties and responsibilities in line with the abilities of an individual in the business to reduce overlapping of roles and conflicts.
Now that succession planning is proving to be an ideal issue for several aspiring and existing family business entrepreneurs, it’s very much necessary to learn and get insights on the same. Succession planning presents best chance for maximization of opportunities and creation of multi-generational entity that embryoids family values and vision from generation to generation. According to Family Business Institute, 88% of current family business owners believes the same family or families will control their business in 5 years, but this is contrary to most of the succession statistics as survival of family businesses from generation to generation is glowingly becoming unachievable due to unproper succession planning element. Infact the clear state of succession is summarised in a statement “The founder works and builds a business, the son take it over and is poorly prepared to manage and make it grow but enjoys the wealth, and grandson inherits a dead business and empty bank account”
Many disregard succession as they fix their minds not to think of retirement, death or even disability. Why is succession planning paramount in family business?
Smooth transition of ownership – having all structures in place addressing management, estate taxes, liquidation will guarantee more professional and efficient change of control in running the business from generation to generation with minimal setbacks.
Guidelines for succession planning
- Create viable goals and objectives- Review current succession plan and make adjustments where possible so as to accommodate the desired goals. Consider creating joint vision, mission, goals and objectives for generation to generation, having everyone in the family business involved in developing the goals brings out the sense of ownership. Family business owners can as well incorporate external professionals/advisors and experts to sharpen its ambitions in right direction.
- Structure decision-making process –Every decision made should be inclusive and informed in line with the business structures, dispute resolution mechanisms should be in place to tackle any arising conflicts. Every decision made should be formal and documented as part of the succession plan and every details of any step made must be communicated to everyone in the family business.
Establish succession plan-
clearly identify who are the successors that‘s those who will be owners and management team, all roles and responsibilities of each person in the business needs to be clearly articulated and understood by all.
- Create a business and owner estate plan – buying or selling agreement should be fair resonating the value of the business, this can be done by the help of financial experts in valuing the business. All the tax issues need to be addressed upon transfer of ownership, sale of the business or death of the owner so that the business isn’t negatively impacted during succession. Review owner estate plan to reduce taxes and inconsistencies during transfer of assets to remaining owners.
- Create the transition plan – timeline for implementing the succession plan must clearly stated, purchasing options either internal or external financing should be determined for efficiency.
Tips for consideration on succession planning
- It’s never too early to start planning – succession planning should start as soon as possible due to uneventful nature life of business and ownership, starting at even 10 years before next generation is prudent as it provides adequate room for putting everything in order.Exit strategy remains important and should be predetermined, all these boosts smooth transition.
- Incorporate all stakeholders in the planning process – every member of the family business should be involved in every decision making process and entire succession plan for creation of common vision and sense of ownership of the plan and business.
- Realistic outlook at family – owners must focus at the strengths and weaknesses of his /her siblings so as to ensure duties and responsibilities are realistically mandated, incases where there’s lack of required talent or ability internally, family businesses should as well outsource without frustrating productivity of the business.
- Train and mentor successor – succession is a process and successors should be involved in the activities of the family business learning all aspects of operations, training and mentorship as key to their development inorder to adequately fit in future roles.
- Engage external advisors with the planning – owners can seek support from attorney, financial experts or even consulting companies specialised in family business affairs to take them through all dynamics of succession planning.
Family business remains to be key pillar for many households even as many aspiring and established entrepreneurs have the inspiration to involve their kids to the entrepreneural culture as early as possible a move that some see as the answer to unemployment crisis in many countries. By understanding the basics of family business especially on succession planning highlighted above, this should be an eye opener to ensure their sustainability these powerhouses,ACT NOW.
“succession planning helps build the bench strength of an organization to ensure the long-term health, growth and stability” – Taela Wilson