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Succession Planning for Family Businesses

Family businesses are often the only source of wealth in a generation, and the benefits of family ownership are many. The benefits range from having one owner who works for the company full-time to several owners who share the business’ ownership and decision-making processes. In some cases, family members may have conflicting interests, but in most cases, the business is run well by a single owner. This makes it especially important for families to work together to build the business.

Succession

The key issue for any family business is succession. It is important to determine who will take over the leadership and ownership of the company once the current generation passes away. Developing a succession plan early is critical to avoid a rift. It is also beneficial to organize discussions among family members during a family retreat, where everyone can focus on the future, rather than competing for the CEO position. The time is perfect for such a discussion. Taking some time to discuss succession plans and family goals can provide a neutral environment for all concerned.

Profits To Expansion

The success of a family business depends on the ability to allocate a significant portion of profits to expansion. However, some family members may not see the value of the expenses, especially those who are not employees. This may lead to conflict and an unwillingness to make the necessary investments in the business. A family business plan should be in sync with the goals of the company and the needs of the family. A great example of an effective family business plan is one that balances the needs of both the company and the people who work within it.

Initiation Phase

The succession process for a family business should begin years before the owner’s death or illness. The five-stage process includes initiation, selection, education, finance preparation, and transition. In the initiation phase, a successor is introduced and guided through the steps of assuming the responsibilities of the business. The succession plan can be implemented even before the owner’s death. In the last stage, the new owner can oversee the transition.

Family’s Ownership

As the owner, the propensity of an incumbent to step aside is an indicator of how willing the successor will be to step into a family business. Ideally, a family business owner will give up control over the business in the event of a personal crisis or a divorce. By separating the family’s ownership, the business will not be able to survive for long. The owners of a family business can continue to work, but it will be at a lower pace.

In Summary

A family business is a dynamic organization and requires constant attention. Despite the fact that its owners have multiple jobs, a family is often divided among many family members. A common scenario is that one person is in charge of the company while the other is responsible for the finances. A successful family business will be able to thrive for generations. The next generation will need to learn how to manage the business and its employees, so that the company is not a burden on all family members.

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