Does your family business have a succession plan?

family-business-successionNote: This post was originally published on May 9, 2015. We’ve updated it with more recent statistics from the PWC Family Business Survey.

According to the PWC 2016 Family Business Survey, 43% of Canada’s family-run businesses don’t have a succession plan in place, and only 12% of family businesses survive to the third generation. We think: yikes!

Why is a succession plan necessary?

We get it – if you plan on working in the business for the rest of your life, it’s hard to have the “after I’m gone” conversation with your family members. It makes people uncomfortable and it’s hard to talk about. However, it’s critically important to have a strong plan for who will take over the family business once your time is up. Otherwise, the business you’ve worked so hard to build could face major disruptions to customers and suppliers – and harm the business overall. It’s not enough to assume your eldest child or favourite niece will take over and run things the way you’d envisioned. A well thought-out plan, laid out on paper, will make things clear for everyone, all to the benefit of your family business.

How to create a succession plan for a family business

  • Start early. Most experts in the field of succession planning say that five to 10 years before your planned exit is not too early to get things started. The longer you can spend planning the succession, the smoother the transition will be. This long lead time gives the successor a chance to get knowledge and experience of the whole business, try their hand at leadership, develop their own relationships within and outside the business, and gain the trust of others who might be less than enthusiastic with the impending change of leadership.
  • Write down your vision for the business. Where is your business headed? What do you want it to achieve? What steps are necessary to get there? Remember that your business is a business first, and decisions must be made to ensure its success.
  • Come up with a shortlist of successors. Related to the first point, who has the skills and passion to lead the family business in the right direction? Is it your daughter with the list of ideas for e-commerce and social media marketing, or your nephew who wants to uphold tradition and keep the business the way it is? Analyze each candidate honestly to arrive at your decision. Try to keep your emotions out of it during this process (we know it can be hard!).
  • Keep an open mind. You may find that the best person to pass the torch to isn’t a family member at all – it happens! Remember, the goal is the success of the business. Family members may feel slighted over this, but keep the channels of communication open and remind them that they still have to all work together to keep things moving forward successfully.
  • Have a chat. Don’t work in a vacuum – involve your family in this process early. Get to know what people think of the whole situation, and what their own goals are. Making your intentions known about how and when you wish to exit the business gives family business members information on which to base their own career decisions.
  • Seek outside help. Formalize the succession plan by getting professionals such as lawyers and accountants involved. There may be legal or financial implications for you to consider when creating a succession plan for your family business. Poor succession planning is likely to be more costly than involving professional help.
  • Write it down. Make sure your succession plan is written out and detailed. Present this plan to the whole family so that everyone knows what’s supposed to happen and when. Having a well thought-out and communicated family business succession plan will help make the transition as smooth as possible.

For more on succession planning and exit strategies, read a previous blog post: What’s your out? Why an exit strategy is important.

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