E-Tip 259 - Successful Family Succession Planning

Approximately 80% of all businesses in the U.S. are family owned. Unfortunately, most of them never survive beyond the initial generation because the founders and those who hope to succeed them cannot agree on five key areas:

1. The needs and interest of the business.
2. Changes in expectations and commitments.
3. Lack of communication.
4. Lack of adequate succession planning.
5. Failure to separate family needs from business management needs.

In a typical business, the needs of the individuals are a distant second to the company's goal; however, in a family owned business, the needs of certain individuals sometimes overshadows the needs of the business . . . which often times leads to family problems.

The Typical CEO Stays In His/Her Job An Average Of Five To Seven Years . .

Often times CEOs stay on for five to seven years, but in family-owned businesses, the owner stays in their position a lot longer while their children and/or family members sit back until he or she decides to move aside . . . a process that causes tension in the family.

Family-Business Owners Need To Take A Serious Look At Their Own Needs, Their Family Needs And Their Business Needs.

To help family owned businesses succeed, we strongly suggest discussing succession planning sooner rather than later. Statistically speaking, by the time a company is in its third or fourth generation, family members and individual needs tend to be disjointed which often leads to the company being sold off or dissolved altogether.

Three Areas Where Family Members Often Disagree Or Run Into Problems.

1. Someone wanting to take more income out of a business vs. reinvesting it into new technology or equipment.

2. Hiring a family member for employment vs. looking at the needs of their company.

3. Certain family members want to take the business in a new direction vs. keeping the business as "status quo."

Most family businesses can continue without interruptions if members can bring into line the following:

• Provide career opportunities for family members.
• Understand that ownership must be purchased at a fair price.
• Agree to develop clear guidelines for everyone's involvement.
• Develop clear guidelines on management systems and procedures.

Summary: Succession planning can be done on an informal or formal basis, but must be done nonetheless. That said, we suggest meeting three to four times a year to ensure everyone is on board with the current business practices, understanding issues and opportunities. If not, your business will run the risk of operating in areas that are unclear; costing the business tens of thousands of dollars a year. Second, these meetings provide a forum for talking about areas of interest, problem issues and roles, both short term and long term for all those involved.

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