Family Business Succession

Approximately 70% of family businesses do not make it to the second generation. This is a high mortality rate, and if they do make it to the second generation, only approximately 9% make it to the next stage. There are several causes for this to happen, and one of them is the lack of a family business succession planning.

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The importance of Family Business Succession

Succession in the family business has been a much discussed, debated and analyzed issue, since it has been considered as one of the situations that most affect the company. It is considered as a problem, but it should be treated as an inevitable transition phase in any company. Succession is to test how mature the company is, how well positioned it is in the market and how ready it is to adapt to the company’s own and family projects.

Entrepreneurs who analyze the future of the company and create a succession plan ahead of time achieve a successful transition. While entrepreneurs who live day-to-day operations without planning and measuring the direction of the company may have greater problems in the generational handover.

There may be founders who want to maintain control of the company’s power and decisions, as well as mention that they are tired from years of work but do not delegate responsibilities and do not accept support to carry out their tasks. Such a situation would further complicate the succession plan.

Family Business
Family brainstorming.

Why it is important to prepare a family business succession:

  • Avoiding family conflicts.
  • The choice and preparation of the successor.
  • Knowing the costs of succession.
  • Generate a long term plan to project the family business.
  • Create a plan for the successor’s retirement.
  • Succession is a long and complicated process.
  • Anticipate future conflicts between heirs.
  • It avoids costly, complex and lengthy procedures.
  • A well-planned succession is more likely to ensure the success of the process.

 

The strategic plan must go hand in hand with the succession plan, since the new decisions will be taken by the successor and with a plan already established it will be a much easier path to follow since the company was already heading towards a pre-established place.

The succession is not an easy situation to perform, so it is important that all members involved have an active, transparent and orderly participation to generate a harmonious transition within the group.

Why family business planning should focus more on the family than on the business

The complex nature that surrounds the family business makes it a special organization due to the three elements that compose it. The company, the family and the ownership give the unique value to this type of business, and researchers in this area have given more importance in recent years to the analysis of these organizations to know how they behave.

Like any other business, family businesses have or should have a business plan to help them manage and grow their business. However, family business planning should have a greater focus on the family aspect, rather than the business.

Here it is mentioned why this should be the case.

1. Human relationships are emotional, numbers are rational.

Overworked stressful businessperson

If the business is doing well, it will tell you with the revenues and profits, and if the business is doing poorly, it will tell you with the losses it has. It is a two-way equation.

However, in a family business you have to interact with the values, thoughts, ideologies and feelings of the family members. It is said that you should put feelings aside and just focus on the business when you are inside, and vice versa when you are at home.

But, what really happens is that many families involve everything, so you must be smart to control emotional situations and prevent them from impacting the business.

2. Families can grow faster than the company.

↟ Daughter helps her father by working in his auto repair shop. Family business

The needs for food, a house, transportation, school, new births, and other family members become important to those involved. If the company is not financially strong enough to provide the necessary income for the family, then it should be planned how they can make it outside the company, or what they should do to make the company grow.

Many times the mistake is made that the company’s petty cash is the family’s petty cash, and if it is not well controlled, it can decapitalize the needs of the business.

3. Family harmony can drive company growth.

Great harvest, fruit picking and family business

If there are arguments or divisions in the family that are working within the business, this may make it difficult or even result in not working in the same direction.

Prioritizing harmony in the planning of the family business could involve the members to look for a way to generate teamwork, with a correct division of labor and established roles.

Undoubtedly, it will be easier to work in a healthy work and family environment.

Methodological framework for the creation of a strategic plan in the family business.

In this article I will take as references different bibliographies that mention what is included in the strategic planning of a family business. Within the references, important aspects that a strategic planning should include are mentioned.

The main authors on strategic planning are John Ward, Stephen Lawrence and Frank Moyes.

The authors Acosta and Perez (2010, P.85) in their research on Strategic Planning in Family Businesses, refer to Ward mentioning that the methodology for the development of a plan are the following:

  1. To have an x-ray of the current state of the company. (SWOT)
  2. Establish the family commitment with the future of the company to ensure planning.
  3. Perform financial analysis to know the health of the business.
  4. Perform market analysis to know the health to identify various alternatives that can be followed in the family business in terms of management, geography, quality and productivity.
  5. To know the goals that the family wishes to achieve.
  6. Select the strategy: Exploration of small markets, focus on the customer, among others.
  7. Evaluate the family’s interests.

Authors Lawrence and Moyes (2004, P.3) mention that the main elements for a successful business plan are the following:

  1. Executive summary.
  2. Company summary.
  3. Services and products.
  4. Industry and market analysis.
  5. Marketing plan.
  6. Operations plan.
  7. Development plan.
  8. Management.
  9. Competitive advantage.
  10. Financial plan.
  11. Sources of financing.

Therefore, a reduced methodological framework for the creation of a strategic plan for a family business can be the following.

  1. Business concept. This can include the history of the family business, the business model and a brief description of its products or services.
  2. Market and industry analysis. Shows industry background, a PEST analysis, Porter’s five competitive forces analysis, and competitive benchmarking.
  3. Strategic fundamentals. The mission, vision and values of the company and the family, as well as a SWOT and Balance Scorecard.
  4. Marketing strategy. The realization of segmentation and the development of the 4Ps.
  5. Financial strategy. The study of financial indicators, sales analysis and projections of financial statements. 

 

Based on these sections, it is possible to obtain the approach of the specific objectives of the project that a company needs. The ideal would be to complement the plan with the realization of the family protocol to cover specific needs of the family.

References

Acosta, A. y Pérez, A. (2010) La planificación estratégica en las empresas familiares. Obtenido el 01 de Abril de 2015 Uniroja
 
Lawrence, S. y Moyes, F. (2004) Writing a Successful Business Plan. University of Colorado at Boulder. Obtenido el 22 de Mayo de 2015 de Leeds Faculty
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