Succession Planning – Seven Hard Lessons Learned From A Family Feud

The dynamics of the family business changes when a founder of a family business dies, especially, if a succession plan has not been put in place. If you think succession planning is difficult during the lifetime of the founder try it after his lifetime or when one half of senior generation is gone!

Some important lessons learnt from the painful experiences of a member of a business family where a succession plan was not put in place are shared below:

Lesson #1 - Estate planning should not be confused with succession planning: While some owners plan ownership transfer during their lifetime, they often fail to plan the transfer of management of business as they assume that the business would continue to run smoothly even after their lifetime. Without a viable succession plan in place, that is a risky assumption to make.

Lesson #2 - Listen to your advisors: It is good to utilise the services of lawyers, accountants and family business consultants in your business and take their advice on critical matters like succession.

Lesson #3 - Pay now or pay even more later: Cost of setting up a succession plan could be a stumbling block especially if it necessitates restructuring the business, bringing in outside management, etc. Besides this, there is an emotional cost as members of the senior generation have to let go of control of the business. But succession by litigation is much costlier in the absence of advance planning, both emotionally and financially!

Lesson #4 - Money matters - provide liquidity: It would be advisable to develop a mechanism by which shareholders can sell their stocks, as keeping unhappy shareholders in the business could be a costly affair for the business and the family.

Lesson #5 - Use real information and not assumptions, for your planning: It will be wrong to assume that all the family members will want the same thing from their family business and consensus decision making model would work across all generations. It is therefore better to get real time information by gathering family members’ views on such sensitive matters while planning for succession.

Lesson #6 - Act today to shape future expectations: Succession planning gets harder the longer you wait. Succession planning will force family members to make decisions about the future of the business. This will help them to align their expectations with the future of the family business. The longer you wait for succession planning the harder it will be to change those expectations.

Lesson #7- Build trust during times of stress: Without trust amongst the family members in a family business, the risk of litigation to resolve conflicts grows significantly. The stronger the trust in your family relationships,
the better is the chance of the business surviving the stress and conflict of succession.

You can plan for succession or let it happen. It is not an easy process. However litigation should be avoided at all costs as it is likely to break the family enterprise.

Share This:

Comments are closed.