Successful succession planning tips for the family business

A family business has more moving parts than other businesses, said Kelly Jasin, attorney and partner at Emens & Wolper Law in Columbus, Ohio. During MGIX 2018 in Columbus, Jasin highlighted several barriers that keep a family business running smoothly, especially in times of a transition of power.

“There’s a very high failure rate when it comes to passing the business to the second generation,” she said. A risk of failure can be reduced if the people involved in the business ensure there are steps in place to handle any curveballs when it comes to ownership succession.

Jasin explained how these seven areas of succession contribute to the future success of the business:

1) Leadership: The current owner needs to set an example for any potential owners.

2) Management: The prospective owner needs to be prepared to manage the employees of the company.

3) Authority: The prospective owner needs to have knowledge of the important authority figures and should communicate to the employees that authority will switch to them when they take over the company.

4) Values: The company values need to align with the prospective owner’s values.

5) Knowledge: The prospective owner needs to know the ins and outs of the company.

6) Relationships: The prospective owner should start forging relationship with key players involved in this business. Jasin suggested establishing relationships with any key advisors and accountants.

7) Ownership: This is the final part of the succession of the business.

“It takes about seven to 10 years to develop a good succession plan,” she said.

To start off on the right foot and ensure the seven points are addressed, the current owner and the future owner should fill out a “wants and needs” analysis.

“This will get the communication started,” Jasin said. “Communication makes or breaks the family business.”

Some questions to have the current owner answer may include what their vision is, what they need in order to cut back on their power, and what they need to happen first in order to begin the process of passing down their business.

For the prospective owner, have them answer questions such as what they need (it may be power, recognition or control for instance), if they are ready or what they need to feel ready, and what they wish the current owner would let them do.

Jasin recommended preparing early, as you never know what may come up. Pre-negotiating contracts that come with the “what if” scenarios that may be running through an owner’s head can ease nerves and feelings of uncertainty. “Pre-negotiating is by far the best strategy for successful succession of the family business,” she said.

Jasin also identified a few aspects of a family business that may result in a failing company.

• Fair isn’t equal. This is challenging in families that have multiple children who could potentially run the business. Jasin said hiring someone just because they are family is never the way to go.

• Individual goals versus family goals. Some individuals may not have the same thing in mind when it comes to the family business.

• Conflict management. Jasin said sibling rivalry often plagues the success of a family business. Current owners (mom and dad for example) may not realize their children are still holding onto old disagreements, setting them up for more conflict down the line.