Updated: Nov 15
All successful businesses need a succession plan and family businesses are no exception. Protect your family legacy by planning for the next generation.
Succession planning is a necessary part of owning a business. You can’t run a business forever and you must have someone willing and able to take it over if you want your business to continue after you leave. A succession plan is key to long-term sustainability of a company. But is it the same for family businesses?
Family businesses are unique because often the person taking over the business is a younger family member who has been a part of the business for many years. And while their role as a successor may already be expected or agreed upon, a robust succession plan is still absolutely necessary. Here’s why.
The added complexity of succession planning for a family business
Succession planning for a family business can be emotionally complex because you are planning for a time where you or your family member will be unable to run the business, potentially due to illness, age, or death.
A survey done by STEP (a global professional body that helps families plan for their futures) in partnership with TMF Group found that 78% of professionals are seeing more generational conflict within family businesses in relation to business succession.
Having a succession plan in place will avoid extra stress during an already stressful time for your family, especially in the event of a sudden illness or passing of the family business founder.
It can also be a long process. According to experts, a transition can take up to five years to complete and, in the case of a family business, as many as ten, depending on the company’s size and complexity.
Succession planning for a family business is a family affair
In 2016, PwC found that 43% of family-owned businesses don’t have a succession plan, yet roughly 75% of the enterprises planned to pass ownership to the next generation.
Families often assume that the next generation, typically the eldest or most involved child, wants to take over the business but that is not always the case. And sometimes, the children who are next in line simply aren’t the right people for the job.
No one should take over a business out of a sense of obligation; a danger when it comes to family businesses. It can be incredibly difficult for family members to be honest about their desire to step away from the family business. If they aren’t asked, it may go unsaid. This is why it’s so important that everyone involved in the succession plan have consented to their future roles.
PwC also found that only 30% of family businesses make it through the second generation, and only 12% make it through the third.
Open communication and setting clear expectations are key when it comes to passing down the family business. Leaving your plan unsaid and waiting until the final hour to pass on responsibilities will be stressful for everyone involved.
Leaving behind a legacy and a family
Family businesses often have strong values, a clear purpose, and distinct legacy to leave behind. They're a way to pass on a family's legacy, along with many years of hard work.
A portion of your succession plan should address the business values and purpose, as well as a description of the legacy you’re working towards leaving. For family businesses, ensuring that the company has a positive image in its community is just as important as making sure it runs smoothly. Written agreements can help prevent family members from blurring the line between business and personal affairs.
A succession plan for a family business is also key to maintaining healthy relationships with all family members, including those who choose to enter the business and those who don’t. The business and leadership will inevitably go through changes, but shared values, purpose, and vision can act as the bridge between one generation and the next.
How EstateBox can help with your succession plan
Creating a succession plan with your family is the first step, now you have to make sure everyone will have access to the most up-to-date information at all times. Make sure to upload your succession plan to your EstateBox (the ‘other documents’ section in the legal stream is a good spot), and document all business assets and finances in the respective asset and financial streams. Don’t forget to add the appropriate people as delegates, and give them access to the information relevant to their current or future position in the business.
Start the conversation about your plans for the family business today. By talking about your priorities and values with your family, you can set a precedent for future generations of family members — and ensure that your legacy continues.
While we’re passionate about all things estate planning, we’re not professionals. We recommend speaking with your lawyer or financial advisor when putting together an estate plan. Follow us on LinkedIn, Twitter, Facebook, and Instagram!