If small businesses are the backbone of the economy, then family-owned businesses are the marrow, the core, of that backbone. There are three million family-owned firms in the UK. These firms employ over nine million people and make up 40% of private sector employment.
In at least 50% of the succession planning cases that we deal with at Kirkpatrick & Hopes, the intended future owners are family members. Usually, these family members already work in the business and are natural choices to take over when the business owner wants to retire or take a back seat. In some cases, however, they are brought in specifically to facilitate the succession planning, and therefore need to be groomed into a management and leadership role.
Failing to properly prepare your successor – and the rest of your staff – is a recipe for disaster. There are some practical steps you can take to ensure your family member is in the best possible position to take over.
Have the discussions about joining and/or taking over the family business as early as possible
This gives the family member the opportunity to seek the necessary education and experience that they’ll need to succeed in the role. Parents tend to assume that their kids will automatically want to join the company. However, for younger offspring, higher education, travel or another industry altogether may be much more appealing. Even if this happens, they may still be tempted back into the business after satisfying their wanderlust (either at university or through travel or work placements elsewhere). As a result of these experiences, they can bring a fresh perspective and new ideas, helping to energise the business and accelerate change.
Minimise any negative effect on the company’s culture
Bringing family members into the company can change the workplace dynamic. However, there are certain practical steps you can take to minimise any negative effect, such as having clear job descriptions, reporting lines, employment contracts, and a good shareholders’ agreement. Generally, the best way to minimise potential ill feeling between incoming family employees and existing employees is to operate in as professional a way as you possibly can. It sounds obvious, of course, but it’s not always easy to adhere to in practice with family members!
Manage the expectations of the incoming family member employee
They may assume they are in for a bit of a cushy ride because they are family. Even if this seems unlikely, it’s still a good idea to prepare them fully for what lies ahead.
Make sure that everyone who has dealings with the company, especially new employees, are made aware of any personal relationships between members of the team
This will avoid embarrassing scenes where a new employee makes a comment to someone without realising they are related to someone else in the firm. Include clients and suppliers in this process as appropriate – they may need or want to know if people they’re dealing with are related.
Work with an expert on the financial aspects
There are special financial considerations when handing over to your children – especially if your pension is not going to deliver the retirement income you need. Ideally, you’ll create a succession plan that delivers an ongoing income, without over-burdening the next generation.
Where passing the business to younger family members is not an option for whatever reason (and don’t forget about extended family members like nieces and nephews), you can still consider going down an ISOP-style succession planning route with your long-standing employees – or, your ‘business family’ as you may think of them!
This post is based on an extract of my book Do More of What You Love: The New Approach to Business Succession Planning, out now.