The Top 3 Elements of a Successful Family Business Transition Plan
Family business owners face unique challenges…and they also tackle those that affect all businesses. Sometimes, they can kill two birds with one stone – especially when it comes to creating a transition plan.
When I discuss transition with clients, I always like to point out the obvious – 100 percent of us will transition, whether we want to or not. All of us get old, decline, get sick, or have some other issue in the twilight years of life.
But it doesn’t have to be that severe. A change in the direction of your family business can leave you miles behind in the dust. Look how often technology changes how we do business now. Look at what the Coronavirus and civil unrest did to us in 2020. Imagine what could happen to our livelihoods if somehow, the internet was disabled or destroyed. Oh My!!!
I hope I don’t sound like a prophet of doom, especially with a national election just a week away. I want you and your family members to understand that transition is coming. You’re not going to be that one in a billion who lives and dies leading multiple generations through success in your business, never taking your hands off the wheel.
Why Family Businesses Have a Short Shelf Life
The U.S. Small Business Administration says over 40 percent of all privately owned companies are considering a transition in ownership in the next five years. A large number of those are family-owned businesses.
But of those that attempt it, family business statistics on successful transitions don’t look good. You have a 30 percent chance of successfully handing off the business to the second generation. Your children have a 14 percent chance of passing the torch with honor to your grandkids. And your grandkids have almost no chance (4 percent) of bringing your great-grandkids into the tradition.
Now, we understand – a lot of that is because families spread out, travel, live far away, marry and raise kids in different cultures, and so forth. But if you’ve chosen the family business model because one day you want your kids to have an advantage in life – you have your work cut out for you to make that opportunity attractive to them.
Not to mention that “life happens.” We don’t know for sure if we’ll make it to old age. We have no idea how the future and the marketplace will change. Families that are strong today can be torn apart by circumstances or bad decisions tomorrow. All this points to a reality: your family business faces several threats from the unpredictability of life.
This compels you to make plans, with decisions that are difficult to make on your own.
The Top 3 Elements of a Successful Family Business Transition Plan
We talked about this more in-depth in one of my previous blogs, but any family business transition plan worth its salt contains certain elements. They are a legacy of character and faith, a commitment to open dialogue and a thoughtful, legally binding, written blueprint to follow.
Character and Faith
When you hear these words, don’t automatically take it to mean “You need to become an elder in your church.” Many clients I work with are not religiously active, but that doesn’t mean they don’t have good character, or faith.
When we talk about “character,” we’re talking about a true understanding of why we’re in business. So much of the greed, materialism and excess in our society comes from removing integrity, trustworthiness and faithful stewardship – so we can make room for making more money. Good character expresses itself differently in business and does not need 100% market share to prove it.
What about “faith?” Have you ever heard the expression “full faith and credit,” or done your due diligence “in good faith”? When we use those expressions, we’re describing a belief and an action someone takes because they sense they can trust the person or process they’re dealing with. “Faith” means “how we behave, because of what we believe.”
When you commit to making a family business transition plan…you’re exercising character and faith.
Open Dialogue
The occasion of the election brings up another good point – if we’re going to operate with character and faith, we can’t have “conversations that aren’t really conversations.” My good friend Scott Hooper, a pastor in Texas, described our political and cultural debates that way.
Family businesses are famous for their internal quarrels and dysfunction. But they don’t need to be, if we can learn how to properly engage people at the right time. The best time to discuss how your business could operate in your absence is before you and your family members are fighting over it.
If that’s not an option, there’s never a “bad time” to seek forgiveness and reconciliation. You might not be able to rebuild your connection with a family member very quickly…but most of the time, you can rebuild it if you don’t give up. Just like with faith and character, though, you will need to go through a “paradigm shift” that removes money making and productivity out of the top spots in your priorities list.
I hate to make it sound simple. You’re also going to need to become a better leader, who can control your tongue and temper. People who don’t feel “heard” won’t just “settle” for whatever you give them. They’ll either become rebellious or resigned, if you’re the type to interrupt and act like a dictator. You need to face the bitter truth about your shortcomings as a leader, by listening to the opinions of those you lead.
Writing on the Wall
I don’t care much for graffiti. I realize there are people with tremendous talent for wall art, but what would make all of us breathe a little easier was if they had their own walls to paint on and didn’t use the ones everyone can see. Of course, that would take a lot more money than the average graffiti artist has.
But here’s a tougher truth: most graffiti artists don’t believe they have many choices in life. Would you agree? Do you think most of the people who spray paint obnoxious messages on walls feel empowered to make choices about their own destiny? Or do they feel more like they’re doomed to fail?
Beware of making decisions on behalf of your family members, without really knowing or asking their input on what you put on paper. It’s important to show honor to your spouse, children or other relatives who help you make the business successful. For you to “assume” you know what they want, or how they feel about the succession plan you build, would be rude.
Aside from asking them, one other way to “get out of your own way” with transition planning is to join the Family Business Mastermind. By signing up, you’ll take part in a culture of transparency, authenticity and vulnerability, where you can hear what other successful family business owners have to say about your decisions and tactics.
Click here to schedule a 15-minute call to learn more about joining the Family Business Mastermind.
M O R E L I K E T H I S
Family business owners face unique challenges…and they also tackle those that affect all businesses. Sometimes, they can kill two birds with one stone – especially when it comes to creating a transition plan.
When I discuss transition with clients, I always like to point out the obvious – 100 percent of us will transition, whether we want to or not. All of us get old, decline, get sick, or have some other issue in the twilight years of life. But it doesn’t have to be that severe. A change in the direction of your family business can leave you miles behind in the dust…