Many medium-sized enterprises are in family businesses. When a generational change is upcoming, problems and disputes appear that will strain the company succession in a family business. This may disturb family relation or even be bad for business. An impartial consultant might help to solve succession conflicts.
Company succession in family businesses – what it contains:
Company succession in family businesses is often a great challenge. Many questions have to be answered before the company can be handed over to the next generation. This includes legal and financial aspects. The most important question is, who will be the successor in the company. Who is going to lead the family business in the future? Many middle-class family companies whish for an intern succession. In family businesses the own children often shall become successors in the company. But do those children bring the professional and character requirements of an entrepreneur to the table? Sometimes the offspring does not even want to run the family business. Often this unwillingness is founded on bad experiences in the family – e. g. that the child witnessed the stress of the entrepreneur or that the father rarely had time for the family. Than the sale of the company or the employment of an external executive director might be the solution. Such an external manager might lead the company more successful than an unwilling member of the next generation that was forced into the position. Generation succession in the company should be planned long-term. The senior might train his successor over an extended period. Specific support and encouragement will help the successor to develop company leading abilities. When the necessary competence has been achieved, the new family entrepreneur can lead the company into a successful future.
What does company succession mean for family businesses?
The issue of company succession means a huge change for the leaving entrepreneur. Many things seem suddenly to be upside down. The succession means severe changes in approach and point of view. That is not only an adaptive challenge for the employees but may lead to arguments in the family as well. The leaving entrepreneur often developed the company by himself. He invested his whole-hearted passion to make the business a success. That demanded a lot of time and endurance. Finally, the entrepreneur was successful. Now, when it comes to handing over the responsibility to the next generation many shy away from the consequences. For the entrepreneur his lifetime achievement is at stake. The whole standing of the family depends on the ability of the successor to lead the company skilled and farsighted. Such a succession process might not run smooth. Different opinions, quarrels about the succession and changes of perspectives can strain the generation succession. The adaptation to the changes might take a while – for the successor the leaving entrepreneur and the employees. Under these circumstances it is necessary to keep the company in line despite the grave changes.
Why is the regulation of company succession in a family business so important?
The issue of generation succession is often delayed in family businesses. That is based on the fear of the entrepreneur to lose his influence on the company through the succession. Concerns about possible conflicts in the family might play a role as well. This may lead to a situation in which the company succession is still not regulated, despite the old age of the entrepreneur. If this goes on for too long this might result in an ill-conceived succession. But the planning of the succession is essential to keep the company fit for the future. If the family cannot agree on a successor, not only the harmony of the family is at bay. The reputation of the company is at stake and with it the wealth of the family. If the conflict is displayed in public the entire company suffers. In the worst-case company succession fails due to emotional factors and personal feelings within the family. The result is often the sale of the company or the hiring of an external manager. This can be prevented through farsighted planning. All people involved benefit from a smooth succession process. The bosses are enabled to plan the future of the company and the employees may work effectively. But a clear direction is the necessary prerequisite. Therefore, plan a generation succession thoroughly and early on to disturb the company routine as little as possible.
You should mind the following in the company succession of family businesses:
The issue of company succession proves to be a challenge in many middle-class companies. Very often there is a lack of personal experience with this kind of procedure. For most entrepreneurs the generation succession is the first occasion. But optimal planning includes many aspects.
On the one hand legal and economic issues play a vital part. Regulations of company and inheritance law have to be followed. Especially inheritance tax and gift tax are of crucial meaning. The value of the company should be figured out as soon as possible to avoid problems. Legal issues can be easily solved through the consulting of an expert. It is often underestimated how much time a company succession will demand. Therefore, remind yourself of the upcoming generation succession and do not delay the issue. Plan with a generous timeframe for your company succession to give yourself a chance to thoroughly prepare your successor. Be selective in the choice of the successor for your company. Often it is the son or the daughter that are selected for the succession. But they are not always the luckiest choice for the job. Do they have the necessary experience, the skills and endurance? Clarification of the goals of the company is another important issue. What shall be achieved in the long run? Do all parties agree? Only than the new generation can effectively work towards these goals. Therefore, inclusion of family members, executive director, employees, stakeholders and customers is important. The trust in your brand has to survive the generation succession. Clearly define the responsibilities of all parties involved in the process. It is important to separate private issues from business issues as clearly as possible. Do it together. If you work together in the same direction this eases the generation succession.
Problems that might occur in a company succession of a family business:
Generation succession in companies often does not run smoothly. Often there is a lack of information concerning the most important issues among the different parties involved in the succession. This might complicate a smooth succession process of the company. If the company wants to sell the business there are several things to keep in mind. Financial means are an important issue. To evaluate the company, it is necessary to know if private financial means are clearly separated from company means. If the company decides to hire an external executive director a common direction for the company development has to be decided. A family-internal succession process often turns emotional. Old conflicts within the family erupt again. Or there is discussion about the right method or the right successor. If the company shall be given into the hands of the next generation the successor might not feel ready for the new responsibility. Or the next generation is not interested in taking over the family business. Especially in middle-class family businesses the pressure to follow the former generation is often strong. The company should stay in family possession. But that might not be the best possible solution. Who does not want to take the responsibility might not be the best choice for a successor. Trouble is ahead if several children want to do the job, too. Who is to be preferred? It is possible that one parent favours one child, while the other parent favours another.
Company succession in family businesses: Problems in succession endanger the success
A problem that often occurs in company succession comes from the leaving entrepreneur. He cannot let go. Despite formally handing over the responsibility he stays in the background and tries to influence the processes. He is often not consent with the decisions of his successor. There is this lingering feeling that the successor is not really ready for takeover. Failed expectations lead to accusations. The climate becomes toxic – in the family and in the company. The pressure burdening the successor is immense. He doubts, if he is fit for the challenge. But to the outside world he has to suggest exactly that – a balancing act.
All these problems stand in the way of a successful company succession in a family business. Especially in smaller companies they are often very serious. The entrepreneur is deeply involved in the daily business of his company. This complicates the succession procedure even more. A mediation through an impartial mediator can help to deescalate the existing conflicts. He pilots the conflicting parties through a smooth company succession.
Tips for company succession in family businesses
Company succession needs careful planning and sufficient time. These three tips will help to be successful with the handing over of your company to the next generation.
- 1. Do not delay the company succession of your family business
Many companies talk much too late about succession. Many entrepreneurs want to avoid conflicts within the family. Others do not want to face the perspective of their loss of responsibility. The best solutions in generation succession demand sufficient transitional periods. Many issues have to be discussed – from contract design to the long-term goals of the company. Early planning keeps harm for the company at bay.
- 2. Accept change that is a vital part in company succession in family businesses
This tip is especially important for the leaving entrepreneur. All your working years you have performed tasks in a certain way. Often you have started your company from scratch. You have seen that hard work pays off. It might have been a long road to success.
Handing over your company to the next generation might pose a challenge. You have to accept that your successor is doing things in a different way. Change is a vital part of company succession in family businesses. It is not a bad thing as such, but can be the road to effective innovation. A new challenge might help to let go and to clear the way for the next generation.
- 3. Go for support in your generation succession process
Many companies try the generation succession at first on their own. More often than expected this leads to problems and arguments. This threatens family peace and the success of the company. Involving an impartial third party is often the solution.
An outsider is impartial. He has an objective view on the issues at hand. His experience helps to handle conflicts in a constructive way. Therefore, he enables a solution-oriented procedure.
I have specialized in the conflict solution of middle-class family businesses. In my own working experience, I witnessed many of these conflicts. I was repeatedly asked to mediate in these conflict situations. During my research abroad I had insight into many family businesses and their modes of operation. Finally, I specialized exactly in that field – and I was trained to be a mediator.
It is a special concern for me to solve conflicts consensual and to the satisfaction of all involved parties. My impartiality supports to prevent deeper grudges. If there is a conflict, I help to solve it timely. As experienced partner I provide you with tips for respectful treatment. All parties meet at eye-level. Free of conflicts an orderly generation succession is easier achieved. The working routine will go on, without being interrupted. Company succession in a family business is often easier achieved if supported by an impartial partner. My experience helps to show you a successful method to deal with the problems at hand. For additional information feel free to contact me. I love to support your company succession in your family business – for a generation succession according to your wishes.
Make an appointment for a first free preliminary, now to get to know each other and figure out, if a mediation is a useful option in your case under the phone number 0049 – 160 – 76 25 61 8