Navigating the Transition — In Family-Owned Business

Navigating the Transition — In Family-Owned Business

To many of us, succession planning has a direct application to our family-owned companies. For example, we need to resolve how we address ownership considerations versus management and operating considerations. Situations in which ownership and operations or management responsibilities are vested in the same people can be devastating to a family or closely held corporation if not handled wisely. While difficult, the duties of management and the family/stockholder relationship must be kept separate for the good of both the stockholders and the corporation. Nepotism can be either positive or negative, depending on the capabilities of the individuals involved. However, it is rarely ever neutral.

Business considerations should take precedence over family considerations when it comes to the welfare of the company. Private family matters should never interfere in or be a part of the business. While extremely difficult to follow, failure to adhere to this advice can often lead to situations that can tear a family and its business apart. These may be difficult situations that require an impartial outside source to mediate.

Succession Planning Outline

  • Define where you currently are in your succession planning process.
  • Define where you want your succession plan to take you, especially in light of your current strategic plan.
  • Define how you will get from where you are today to what you want the company to look like at the end of your current planning horizon.
  • Once a plan is in place and people are in the process of being groomed for higher responsibilities and positions, where do you go from here?

You will have an exit from your business. Is it planned?

Family businesses by their nature can and do outlive the original owners. But the outcomes for the second generation may be better or worse. Much of that depends on the native intelligence of the person(s) taking over the business and many times it is under what condition they take over the business. Of upmost importance is creating opportunities for the tough stuff of business to be learned.

Things to Consider

Practice makes perfect.  The parent needs to give increasing responsibility on key decisions prior to them exiting the business. This allows time and opportunity to see how well the future owner will do in maintaining the business. In most cases, these decisions are going to be ones that the future owner will have to live with long after the present owners exit the business.

Personnel decision are some of the most difficult decisions that many owner’s face. The new owners should not be required to inherit employees that are dysfunctional or refuse to listen to the heir(s) apparent. So in the last three to five years the future owner should also have to deal with any poor hiring decisions that they have participated in so they understand the process.

Retirement Means Many Things to Many People.

Being “retired” but still working — the period of transition that will exist until the succession plan becomes a full reality. I describe this as where the next generation is making the majority of the decisions. The parents are still involved, but are more in a back-up role or have less day to day functions to do. The goal is to replace their remaining functions over time.

Preparing Future Leaders.

This is especially true for the future owner. The expectations for future owners must always be higher than a regular manager or employee. Heavy is the head that wears the crown. Family members with aspirations to be future owners need to develop strength, determination, and a vision of future growth for the company. They also must lead by example. Be the first ones in and the last to leave.

Handing over the keys of a business to those who are unprepared and ill-equipped leaves you with the fruits of convenience that will quickly rot. Preparing and equipping are essential for the next generation to take the keys and drive the business into a successful future. Making a plan and providing opportunity and time to grow into different roles while having the successful operators present is a great foundation for successful succession. This allows the next generation to direct the business and still have the availability of their parents to bounce ideas off of or to perform functions they don’t want to do or have time to do.


Robert Counts     Chad Counts        Rich Tyler          Johnny Logel

 

 

 

 

Robert Counts, robert@countsbusinessconsulting.com; 512-693-6915

Chad Counts, crcounts@countsbusinessconsulting.com; 512-963-4626