Leadership and Ownership in Family Business Succession Planning

This week’s post is a continuation of the discussion from last week of succession in family businesses, particularly farm family businesses.  There are two areas of transition that need to be considered when planning for succession.  Transition of leadership and transition of ownership.  The two can and probably ought to be mutually exclusive.  Transition of leadership can and often should take place prior to transition of ownership.  The time to transition leadership to the child is not when the child is in his or her 60s or 70s and the parents are in their 80s or 90s.  Rather, transition of leadership can and should take place much earlier when the child is in their prime years of vibrancy and innovation.  Ownership on the other hand may transition later and may transition to more individuals.The succeeding heir generally wants to know when and how three things are going to occur as part of a succession plan:1.       They want to know when and how will they be involved in the management of the operation.  This is a leadership opportunity and it does not need to be tied immediately to ownership.  If these are truly the talented individuals capable of taking over this business, they need to be given an opportunity to use those talents.  If not, they will likely move on to greener pastures.2.       They want to know when and how they will participate in the profits.  Again, these are talented souls.  They will have other opportunities to make a great living.  They need to know that this is truly a good opportunity for them – not a dead end.  This likewise does not need to be immediately tied to ownership.3.       They want to know when and how the transition of ownership will occur.  This is the succeeding heirs ultimate goal – ownership, in some form, of the family business.  This can occur over time and there are a multitude of forms it can take.  It is not an all or nothing answer.  Nothing is harder for a succeeding heir to hear: “Don’t worry, this will all be yours someday.”  This is not a plan.  What is “this” and when is “someday” will lead to many sleepless nights for the succeeding heir.So what is the solution?  Have a plan, put it in writing and share it.  The plan, like any plan may need to be altered from time to time.  But a written plan that is understood by all creates benchmarks and goals for both the retiring generation and the succeeding generation.  It creates a framework to make decisions that will allow the family business to prosper and thrive.  If you would like to talk more about succession planning for your family business please give us a call.