Risks to Avoid in Your Family Business Succession Planning

Everything comes to an end eventually. The older generation has so much wisdom to offer the younger, while younger generations have a fresh perspective on time-worn traditions. New opportunities arise when the two work in tandem, especially when retirement is part of the equation, which is why family business succession planning is so important. Not only does it ensure that someone is there to take over when the previous leader or owner is ready to move on, but it keeps the company running smoothly during and after the transition. 

Stress-free operational adjustments don’t come without their fair share of pitfalls. Family business succession plans are composed of multiple factors that lead to clear results. Anticipating and working around potential issues will make the transition easier and give you peace of mind before beginning your retirement plans. 

Stepping Away From the Family-Owned Business

The first risk to a successful succession plan is the willingness to leave. The leader of the company is likely the family head or a family member who has held the position for a long time. They have a wealth of knowledge around the industry and the operations of the business, along with connections, respect, and authority. Being a leader for that long means cultivating a business ethos that drives you, which is something that manifests in their daily operations. 

However, some people don’t know when to step away. You may have plans to retire at some point, but handing over control of the company is difficult for some. When you start drafting up plans for succession of the family business, you have to be entirely sure that you’re willing to leave entirely. Too many hands in the pot can cause operational disruptions down the line and lead to mistakes that impact everyone. You have the duty of teaching the next in line how to handle the responsibilities of ownership or leadership, but that also means you have to be willing to let them handle everything themselves when the time is right. 

Family Goals Vs. Business Goals

A common risk to the succession process is the balance between the goals of the family and the goals of the business. Ideally, these would be fully aligned first, but sometimes new ideas are added to the mix when a new leader is chosen. They have a vision for what the company should look like, while the family may have a differing opinion. These two points may even go against the currently established goals of the business, leading to a sort of power struggle that can bog down the transition and lead to conflict. 

When a succession plan is being drawn up, you should take stock of the goals everyone wants to achieve. Which are the most possible or likely? Which are currently out of reach or unrealistic? Once you’ve laid everything out, talk it through with everyone involved to line everyone's opinions up and choose the goals that make sense for the business while working with the family’s ideals.

Always Have a Backup Plan

You need to plan ahead. The point of a succession plan is to do just that, but you should take extra steps to plan for every contingency. If you choose a successor and they decide down the road that they don’t want the job anymore, you don’t want to get caught flatfooted. Succession plans don’t always work out the first time. A new leader could mean new company culture, lower performance, or mismanagement. 

Planning ahead is a solid start to mitigating risk, but so is appointing independent directors to the board. A board of directors in a family business that has at least three independent directors is statistically more likely to bring success to the company than one that is all internally staffed. A fresh perspective helps shed light on problems you weren’t able to see because you are around them so much. Now you have others to align the succession with the family and company goals while lowering transitional risk. 

Family Succession Planning with Family Business Consultants

Sometimes life catches you by surprise. Any time a business begins the succession process, they open themselves up to potential risks. There are many moving parts that go into a successful family business succession plan and seeking help is the best way to avoid problems. 

Family Business Consultants is the premier St. Louis-based family business succession advisor. We help family-owned businesses create streamlined succession plans that take every possible risk and change into account. Your retirement plans should be held up by an ongoing succession strategy. Simplify the process with Family Business Consultants today.