Family businesses face the same challenges as other businesses, including succession planning. But the family dynamics can make those transitions even more complex.
Many family businesses don’t survive those challenges across multiple generations. “About 30 percent of companies make it to the second generation without being sold or failing, about 12 percent make it to the third generation without being sold or failing, and only about 3 percent make it to the fourth generation. So the stakes are high,” said Devin Lemoine, owner and president of Success Labs, a leadership development and management consulting firm.
Lemoine; Linda Perez Clark, a partner at law firm Kean Miller; and Jeremy Klibert, a partner at CPA and business advisory firm Faulk & Winkler, teamed up to share valuable information on succession planning for family businesses. Here are some of the key takeaways from their discussion.
Get Your Plan Down on Paper
Succession planning can be a difficult topic, because it means candid discussions involving death, finances, business management and who will — or will not — be involved in the business. But even though it’s easy to avoid tough conversations when things are running smoothly, it’s important to take the plunge and start sooner rather than later.
“It’s a marathon. You have to start years in advance on your succession planning for it to be effective, “ Clark said, adding that succession planning should address both business succession and ownership succession.
For business succession planning, she says, you should consider things like “What is the path forward for management and operational continuity?” and ”What vehicles and structure do you have in place to ensure continuity in terms of business operations?” And she suggests having clearly defined succession-planning responsibilities, such as for board members or a specially formed committee, to ensure that someone takes on this task.
For ownership succession, Clark suggested shareholders agreements, partnership agreements and operating agreements for different ownership setups. These agreements should include buy-sell contingency clauses for different events to avoid confusion or bitterness between family members when there is a need to implement the succession plan.