There’s a lot of twaddle talked about the rise and fall of family businesses and family succession planning, like:
- ‘Family-owned businesses are a small part the UK economy’.Actually they account for almost 95% of businesses in this country. So family succession planning is vital.
- Family businesses ‘go from shirtsleeves to shirtsleeves in three generations.’(The first generation makes it, the second generation manages it and the third runs it aground).
The fact is that many family businesses fail because so few have a well-conceived family succession and leadership plans. It is believed sufficient for father to teach son the ropes and just assume that son will just carry on.
The reality is that family businesses are a vital part of the British economy, but their very smallness means that their needs tend to be overlooked by governments and by the family business owners themselves, who often do not provide an adequate family succession plan.
Consequently a number of mythical elements prevail. Here are just a couple:
- Misconception: Family businesses tend to stay in the family.
Reality: Recent research suggests that just 55 percent of family business owners intend to pass their business to the next generation. This suggests that many family businesses will not be handed down in future and has major implications for planning a retirement sale. The underlying disruption and inefficiency that this causes within the British economy are incalculable.
- Misconception: Going to work at your family’s business is like breaking the code of life. You get a cushy job and a fabulous inheritance when the previous generation dies or retires.
Reality: Only about six of 10 family businesses have sufficient resources to divide their assets fairly between all heirs. Furthermore, only a quarter of them foresee an ownership change in five years. And 40 per cent lack any kind of succession plan
When a company is turned over willy-nilly to “the kids”, that is where problems abound. What’s missing is a leadership plan initiated by the current family owners, yet the next generation is blamed for the failure.
Leadership Plans – the essential family succession planning ingredients
Competency – comes from developing the right experience and background to work in the company. Current business owners should be objective in matching future business requirements against the abilities of the next generation.
It may be a good idea for the designated successor to get outside experience in other (perhaps larger) firms, and/or to attend a reputable Management Training Centre from which a variety of short or longer courses are widely available. Alternatively, an experienced mentor (such as a CMC Partner) can do excellent work and facilitate on-the-job learning.
Commitment – Future success is unlikely if the next generation does not have the same belief in the founder’s business goals and philosophies. Sadly, many sons and daughters are drawn into the business through blind loyalty to their parents’ dreams and expectations, with little thought for their own aims and aspirations.
Character – is the most critical aspect of leadership. It arises from individual personality, and a vast reservoir of information, experiences and interactions. Business owners should assess the character and leadership qualities of their offspring before saddling them with a level of responsibility that calls for motivational as well as strategic and operational flair.
The more someone is aware of his/her personal and professional demeanour, the more successful will he/she be as a leader. This will almost certainly require the help and guidance of their forbears or someone like the aforementioned CMC mentor.
So we should set aside all the myths surrounding the success or failure of family businesses. Put simply, the next generation can lead family-owned businesses to greater success when the preceding generation provides the right preparatory support and commitment. In this, they may learn from the well-honed business and human resource practices of non-family businesses.
CMC Business Advisors are well-placed to support smaller businesses that may lack the necessary internal resource for effective family succession planning and advise on whether or not a straight business sale might be preferable to a family handover.