Human Capital Alliance managing director, Edwin Sim looks at successful family business transitions.
Before businesses can be successfully transferred to the next generation, the appointed successors must fully understand all aspects of the business.
These aspects include day-to-day operations, company finances, long-term business cycles, how to hire and manage employees and how to negotiate relationships with partners and vendors.
At the same time, the successors must also learn to find innovative ways to maintain profitable growth in the face of competition and the ever-changing business environment.
In her recent article “Preparing for a family business transition,” Kathy Richardson-Mauro said preparing family members for a business transition and developing a solid succession plan are critical success elements.
Most family wealth from private business
Globally and especially here in Thailand, most family wealth is created from private business enterprises. Many studies also show that many family business owners are aging.
Richardson-Mauro said a recent study showed that 51 percent of business owners intend to transition the ownership of their businesses during the next ten years, with about half intending to sell their businesses to independent third parties; the other half intending to transfer the business to insiders, such as family members, employees or management.
Ensure anointed successors really want business
Often in multi-generational family businesses, the owner assumes the next generation wants to take over the business.
The owner must ensure anointed successors really want to take over business and are adequately prepared in terms of knowledge and skills to manage the business.
Developing leadership skills well in-advance
If the ultimate aim is to keep the business in the family, the owners must make sure they have developed their successors’ business and leadership skills well in-advance of taking over the business.
“While an internal transfer is typically less complicated from a business perspective, it may be quite complicated from a personal/relationship perspective. “
Richardson-Mauro suggests that owners should have a succession plan in- place before approaching children or family members.
Most difficult owner challenges
Owners contemplating transitioning companies inevitably face several difficult challenges including:
1.Deciding who will succeed the current owner as President or CEO
2.Preserving and building the company’s value during the transition
3.Providing a smooth transition for owners, successors and key employees
Overcoming success impediments
The author suggests that owners should also closely follow several key elements to ensure successful transitions including ensuring complete transparency during the process, developing strong family governance, and developing a strategic written succession plan.
Because succession planning for small and family business transitions often involves a huge amount emotional turmoil, it is often helpful to turn to an outside, impartial group of advisors to assist the navigation process.
Statistically, the chance of a family business successfully transitioning from the first generation to the second is about 30% and the odds get worse as you move to third generation – less than 10%.
“Make sure that you give yourself and your successors enough time for the transition process, and that you’re informed about all of the choices available so that you can make the best decisions for you, your family, and your business.”
Focusing on business
Although succession planning and choosing a successor for a family business can be fraught with challenges, the author said the emotional aspects must be put aside in order to focus on the business.
“Having a sound succession plan in place can take the emotions out of the planning and help ease the transition for both the business owner and his or her successors.”