Did you know that there are around 5.5 million family-owned businesses in the United States? Whether the business is a vegetable farm, a beloved family diner, or a posh bar in the city, the family business holds a special place for family and community members.
Are you a family business owner who would like to execute a smooth transition of the business to other family members or loved ones? Read on to learn the best ways of passing the business down to the next generation.
Start Early and Figure Out Who Is Interested
As the owner of a business, it is important to be honest with yourself about how long you would like to manage it. Are you nearing the end of your career and hoping for another five years? Or are you just starting with the family business and hoping for decades of successful operation?
Thinking about long-term planning can help you to identify the parties in your family that may be taking over the business. Talk to close family members early on, to get a sense of who may be in the lineup. If no one seems interested, you can take the time to approach different family members and present the proposal.
In many families, multiple people would like to get in on the business transition. Use these earlier stages for people to discuss their roles and how they may help the company. For example, your daughter Sally may be the company’s President, while your son John may take over the marketing efforts.
Use Your Best Judgment About the People Who May Take It Over
Who knows potential business owners the best? Their family. One benefit of having a business passed down to family members is that you have an intimate sense of how your family members would be in different roles.
Let’s say your son Patrick tends to be slow-moving and wakes up late every day. He struggles to hold a job and quickly changes interests. Using this information can help you make the judgment that he may not be the best leader.
However, you think of your other son, David, who graduated from law school and is working for a big firm. He is motivated, energetic, and very professional. This knowledge gives you confidence that he would do a great job with the company.
Ask yourself some questions to evaluate who would be a good fit. These include whether they love the business, their ability to work long hours to meet demands, and whether they enjoy being the one in charge.
Get Away From the Business for a Bit and See What Happens
Who says taking a nice long vacation just has to be for pleasure? Whether you want to take a Mediterranean cruise, explore the ancient ruins of Mexico, or climb the mountains of California, stepping away from the business for a bit can be a great idea. It gives people who may be taking over the chance to experience what it would be like.
After a year or so of the transition process, we recommend taking a true break and not calling to check in. The earlier you delegate to others, the easier it will be to step away from the business one day completely. When you return, if you can see that business stayed steady, that is a good sign that you made the right move.
Make a Slow and Smooth Transition
Nothing good ever happens in a rush. Passing the family business to the next generation too quickly can result in mistakes and disappointment for the new and old owners. Instead, plan for the transition years ahead whenever possible.
In many small businesses, there are key relationships, also known as loyal customers, who are the bread and butter of the business. As the initial business owner, it is helpful to make proper introductions to the new management. This ensures that the business’s primary lifelines will be maintained throughout the transition.
It is normal to be concerned about business operations after a big transition. Sometimes, previous owners are not in a position to transition effectively. Hiring a family business consulting firm can be a huge help if you would like more support.
Allow the Next Leaders to Make Personal Changes to the Business
One of the biggest tensions from passing the business down is the concept that previous owners want the business to be maintained exactly as it was. This may look like the old owners not wanting the new to embrace technology, not make updated renovations to the building, or anything in between.
Sit down with the newly appointed business leaders to create reasonable expectations. By communicating the key pieces of the business that you would like upheld, the new managers will have a framework of how to make the business their own while maintaining your wishes. An open dialogue is the best way to avoid conflict during the transition.
Now You Know How to Transition the Family Business
We realize that transitioning the family business can be an exciting and stressful time. Because of this, we encourage you to use these tips when passing the business down to ensure the smoothest transition possible.
Our team at Positively People is here to support you through this time of change. Whether you want to learn about the challenges of family business succession planning, how a family business advisory board can help, or how to transfer stock to new leaders, our resources are there to help.
Contact us today to learn about our Family Business Consultant Services and Strategic Solutions.