Transitioning the family business from one generation to the next is a challenge, but it’s one you can take on with confidence with the tips included in this guide.
According to some estimates, only 30% of family-run businesses are successfully passed on to the second generation. Only 10% reach the third generation.
If you own a business and have hope of passing it on to your children and grandchildren, then these statistics probably aren’t too comforting.
Rest assured, however, that successfully transitioning the family business from one generation to the next is not a mere game of chance.
The foregoing statistics merely show that transitioning is a complex and challenging process and that most businesses are not properly prepared for a successful transition.
Where do you start? Here’s the key considerations for family business owners.
Accept the Challenges
The process of transitioning your business is not an automatic one. Never assume that it will be easy and never assume that your children will naturally rise to their calling to run the family business.
Each generation has values, communication styles, economic concerns and social pressures or expectations that differ from those of the generation before it. Such diversity can cause conflict between your priorities and those of your children.
Avoid pressuring your children to take up the family mantle. Pressure can increase the risk of rebellion that dooms your family legacy. If you can acknowledge and accept the fact that the next generation may not share your enthusiasm for carrying on the family business, then you’ll be better prepared to plan for your company’s long-term success or exit with few emotional upsets.
Remember that the transition process is just that: a process. Passing on the family legacy doesn’t happen all at once in a torch-passing ceremony, so to speak. It’s something that takes lots of time and careful planning so you need to begin thinking about the transition long before you’re ready for retirement.
If you suddenly dump the responsibility of running the family company onto reluctant and inexperienced successors, then your business is not going to transition well.
By starting the transition process early, everyone will be on the same page and your successors will be ready and willing to carry on the family trade when that day finally comes.
Make sure that everyone who will be affected by a leadership transition knows what to expect. This includes business partners, the potential successors, and advisers or managers who currently work for you and will eventually work for your children. Keeping everyone informed of your intentions and plans will minimise conflict and confusion about responsibilities.
Communicate Company Values
When the next generation understands why your company is so important to the family, how it benefits the local economy and society and how it gives back to the community, then you’ll be more likely to instil your love for the business in them, as well.
Help your children get engaged in the company’s values right from the start. Teach them from an early age about the ethical aspect behind certain business decisions. When they can see for themselves the impact of successful leadership, they’ll be more likely to make smart decisions in the future when they’re in charge.
Let your children gradually assume more and more responsibility in the family business as they mature. Let them have the chance to offer their perspectives and suggestions at company meetings. Getting involved in the family business will help them develop a sense of commitment to it.
Provide plenty of educational opportunities for the next generation. Internship programs, workshops, trade events and conferences are excellent opportunities to keep your children actively engaged in the transition process. And don’t forget that education can and should come from outside the family business too – these experiences in other fields will add more value to the business, in the long run.
Call on the next generation of successors to step up and bring something new to the family company. Just because it’s a family business doesn’t mean your children have to do everything exactly the same way you do it. Allow your children to develop their own interests outside of the company and then bring back what they’ve learned to benefit the business.
Let your successors have an active and prominent role in integrating new tech and digitising processes.
This will call for adaptability on your part. Don’t resist change. Show that you welcome it and your children will welcome the chance to work with you. Doing so will also help your company stay relevant to the next generation of customers and clients.
It is crucial to have a team of advisers supporting you through the complexity, and helping you execute a successful strategy that will support the generations. Nitschke Nancarrow has worked with many family businesses on a variety of accounting and financial needs. The team at Nitschke Nancarrow can help set you up for a smooth family business transition.
Contact Nitschke Nancarrow, experts in accounting, financial planning, investment and business. We operate in Adelaide, Sydney, Melbourne and throughout Australia. Managing partner Kym Nitschke is available for a free initial discussion about your situation. Call us on (08) 8379 9950 or send me an email.
– Kym Nitschke
The information contained on this web site is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.
Taxation, legal and other matters referred to on this website are of a general nature only and are based on Nitschke Nancarrow’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.
Nitschke Nancarrow specialises in accounting, tax and financial advice for superannuation. Contact us now for a no obligations discussion about your needs.Tags: Accounting, family business