The hardest part of passing down a business isn’t usually the paperwork. It’s the first conversation nobody wants to have at Thanksgiving.
If you’ve built a successful family business, you probably hope that your company will stay thriving for generations. You likely intend to pass it down to your children, and they, in turn, will pass it down to theirs.
However, smooth, snag-free business succession doesn’t happen by accident. As stressful and uncomfortable as it may be, discussing succession is an absolute must.
The Weight of Succession Planning
Although avoiding succession planning is never a good idea, it’s easy to understand why families do it. In a family-owned business, the topic of succession carries a unique emotional weight for a few different reasons.
Confronting Mortality
Creating a succession plan isn’t purely a financial undertaking for family businesses. When you plan for your company’s next chapter, you’re explicitly acknowledging that the family member leading the business will one day die or become incapacitated.
Feeling a Loss of Purpose
For many family business owners, the business is deeply connected to their sense of self. This is especially common if the person currently running the business is the one who founded it. Stepping down from their leadership role, and sometimes simply talking about it, may make them feel like they’re losing part of their identity.
Potentially Leading to Conflict
Many families avoid the topic of succession because they know it will cause strife. If multiple siblings want to take ownership of the company, a final decision could lead to lifelong family strife.
Some families have the opposite problem. The current owner of the business may want to pass it down to their adult children, but their children may be uninterested.
Tips for a Successful Succession Conversation
Your family likely won’t finalize a succession plan in a single conversation, but starting that first conversation is almost always the hardest part. These tips may help your family navigate the process as painlessly as possible.
Don’t Wait
There’s no hard and fast rule about when to start talking about business succession, though beginning about five years out is often recommended. The most important thing is to do it early.
Don’t wait until the primary business owner falls ill or passes away. Waiting too long could put the business in jeopardy, and it might also make your family rush into making decisions they otherwise wouldn’t.
Don’t Force Family Succession
If you’re the one currently running your family’s business, have an honest conversation with your heirs. Do they want to take over the company? Pressuring or forcing an uninterested heir to take over typically doesn’t end well.
Instead of sitting the family down and telling your heirs what you expect of them in the future, follow this framework:
- Start by telling your family what you envision for the business’s future
- Next, ask your heirs what they’re hoping for
- Take the time to truly listen to their responses
- Work together to create a plan that best suits everyone’s needs
This framework is only effective if everyone is completely honest. Before you start, consider telling your heirs that you want to hear what they truly think.
Structure Meetings
Once you’ve had the initial conversation and agreed upon a general path for the company’s future, you’ll probably need to meet several times to work out the fine details. Setting dates and times for these meetings will encourage family members to take the process seriously.
Consider Bringing in a Third Party
Including a business advisor or attorney in your succession planning meetings may prove to be helpful. A professional can offer valuable outside perspective and guidance. If conflict arises, they may function as a mediator.
Write Down the Important Things
The family members currently operating the business have an in-depth knowledge of what it takes to run the company from day to day. Often, that knowledge isn’t written down, and the family members who inherit the business are completely unprepared to run it.
By noting operating procedures, supplier relationships, and any other important details, you can help set up the next generation for success.
Guiding You Through the Succession Planning Process
At Zabel & Munson, we understand that creating a succession plan for a family business involves more than just navigating logistical challenges. Our team is passionate about helping entrepreneurs thrive in both business and life, and that includes through personalized exit and transition planning.
If you’re looking for professional guidance as you embark on this journey, contact us today.