Successfully running a small and family business takes a significant investment of time, energy and resources. This makes choosing the right time to hand over a challenge, as owners look to develop their successor’s skillset and passion to take on the business.
Developing a succession plan not only prepares for the future, it makes the transition easier and allows time to successfully onboard new owners/family members.
Five questions family businesses need to ask before developing their succession plan:
1. Passing on the business to a family member – is it the right decision?
There are many ways to exit a business. Family business succession is just one avenue, and it is important to first weigh up whether this is the right decision for the business and for the family. Family dynamics can at times be complex, and embarking on family business succession requires buy-in from all those involved.
2. Does the next generation want to run the business in the future?
To ensure future success of the business, owners need to have important conversations with the next generation to identify if they are interested and to understand their individual strengths, weaknesses and skills. While a family member may enjoy working in the business, it cannot be assumed that they are comfortable or competent in managing or owning the business.
3. Are you prepared to invest the time and resources required to facilitate the succession?
A successful transition requires an intentional investment of time and resources, along with a methodical, well-thought-out approach. Ensuring family is ready to takeover takes time and works best over an extended period. Family Business Australia recommend a period of 3 - 5 years.
4. Which approach will you take? Management succession, ownership succession or both?
When succession planning, a business owner can either transfer their leadership and responsibilities over to their successor (management succession) or transfer their equity interest to their successor (ownership succession). To identify which path is best depends on a business owner’s goals and the family members they’d like to involve when exiting the business.
5. Will your successor be ready to lead when you’re ready to move on?
Agreeing on the right timing and ensuring the successor preparedness is vital for a smooth transition. Adjusting timeframes during succession will be much easier than having to return to the business after exiting, and after profits have declined, reputation is damaged, and confidence is low.
