Every successful family business has survived and thrived thanks to a combination of hard work, some luck, but above all else planning. Yet as baby boomers prepare to retire and consider the possibility of leaving the family business to their children, they sometimes fail to exhibit that same willingness to plan.
The result is that the business stumbles. Sometimes it can be from the children lacking the skills to continue running the business. Other times it can be from them fighting for years about who controls what, or even the children attempting to use power of attorney to seize the business from you.
The point is that just like every part of running a business, careful planning is needed for a successful family transition. Here are some of the most important details and things to do.
Choosing a Successor
Some business owners may decide to split the business equally among all their children, but this is a serious mistake. A child who has actively been a member of the business for years beforehand will actively resent having an equal status with his sibling who has exhibited no interest in the business beforehand. This resentment can lead to legal disputes which can spill out into the public, harm your business’s reputation, and harm its efficiency.
Consequently, owners should pick the children who are the best suited for running the business both in terms of skills and enthusiasm, and make sure that they are the primary successor. Furthermore, it is better to have the successor buy into the business with their own money instead of gifting the business outright. If your child makes a financial contribution to the business and has a personal stake in it, they will be more willing to make sure it succeeds going forward.
A Public Role
Nonfamily members of the family business will resent family members who are placed in charge of the business purely because of nepotism, and so it is important to counteract this threat. It is not enough that your child has gone to a good college or even has some business experience elsewhere. You need to show employees that your child knows the family business and is willing to contribute.
Your business likely succeeded because you put in the long hours and hard work which many SMB owners commit, and you should expect your successor to be willing to do the same thing. It may not be realistic to say that you should treat your children as equally as your nonfamily members, but you should demand quite bit if you intend to leave your legacy to them.
There are going to be differences in how you run your business and how your child runs it. As one example, children are often more willing to go for higher-growth strategies which may be riskier than the conservative strategies you have used.
You may be willing to step in and stop them from taking a different path, but you must be willing to let them make mistakes. If they do not do it now, they will make mistakes later when you will not be around to correct them. If you have passed the business to them, accept that it is theirs and do not step in with the slightest mistake.