Too many family business owners don’t think of succession planning. For reflective business owners, this backward/ forward dynamic usually leads to a much-needed review of operations. Business owners everywhere could stand to take some time to ask the fundamental question: What can we be doing better? However, not all business owners think that far ahead or always take notice of their customer’s suggestions. Satisfied with short-term adjustments, some business owners often fail to think about that inevitable moment in every business operator’s life, when he or she finally hands the business over to a suitable successor.
Every entrepreneur is a potential family business owner
What motivates entrepreneurs to do what they do? For some, market dominance is their aspiration and for others there’s a substantial need in the world they want to fill and create their own legacy.
Despite their initial motivation, ever successful business owner will inevitably transform their business from disarray & disruptive to harmonious & stable. As this transition eventually starts to happen, the business owners family members will potentially start to show interest in the company, how it’s run day to day and be slowly introduced into the fold when the time is right.
The business owner may start out as a solo operator, but if the business and family start to grow and show continuous signs of success over time, the company will start to play an important role within the life of the family and present opportunities for the family members to be future employees. This is therefore what it means to say that every entrepreneur is a potential family business operator/owner.
Disruptions will occur
For a family business, profit is about more than satisfying their shareholders. It’s about supporting a lifestyle. For the family members who are directly involved and for the individuals that work in your business, that plainly means income. However there is more to this than just financial gain.
There may be a number of family members that benefit indirectly from the business, for example the sister whose childcare arrangements rely on the flexibility only you can offer her husband or the cousin whose business you partner with that relies on your contracts to survive.
What would happen to all those people if the wheels of the business began to slow down or suddenly stop? As the business owner, you may not have plans to retire soon, but what about those moments in life that you don’t plan for like an unexpected disability, serious illness or sudden death.
A recent study by Professor Sascha O. Becker at the University of Warwick calculated the effects of a founder’s death in a mature family business and how the company’s value would typically suffer from significant setbacks after the loss. The research found that businesses would experience a 60% drop in sales, 17% decline in employment, and 20% lower survival rate following the founder’s death.
Without a firm succession plan in place for the future company operators, the business operations will quickly start to fall in quality and the remaining company employees will begin to feel unsure and wonder who to turn to for guidance and leadership. Another important fact is that the company’s stakeholders will be caught in the crossfire as they try to decide and figure out what to do next. And amongst all of this confusion and disruption, the customer numbers will start to drop, the revenue will be affected and the problems will continue to form.
Planning for disruption
If you haven’t created a succession plan, then you’re not alone as most family businesses don’t think that far ahead until it’s too late. Family business owners have plenty of excuses for not attending to succession matters. Here are three steps to take to ensure your business won’t stray the path if you stop turning up at the company:
- Company Stock Records
Take stock of all your product & service operations. Document the key processes and assign responsibility to one of your trusted employees to make sure they have access to the information. You won’t need to write everything down, just the crucial elements of the procedure that live only in your head.
- Choose your Successor
This is never an easy task, but you will need to handpick the staff member you would want to carry on with building your legacy, and continue to run the business in your absence. After the selection process has been completed, ensure you get their buy-in and then, most importantly, spend some time preparing the successor for your job.
- Insurance Policy
Much like personal life insurance, key person insurance provides a financial safety net when a business owner or key figure head within a business suddenly passes away. This insurance payout will enable the company to satisfy its financial obligations as it searches for a successor.
The survival of your family business impacts far too many people for you to leave it vulnerable to your sudden departure. You may feel invincible, but the sad fact of the matter is that life happens and family businesses lose founders unexpectedly. Protect your legacy and prepare your succession plan today!
If you’re interested in finding out more around how EFM Growth can help guide you through the challenges of succession planning, speak to our team of experienced Growth Partners. Get in touch today through email or call 01582 516300.