Planning the next move

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Successfully transitioning to a professionally-managed business

To grow and evolve a business to the next level, Canadian family business leaders may consider transitioning to professional management.

Tahir Ayub
Canadian Private Company Services Leader
“Whether a succession plan is in place or not, whether there will be a sale or not, professional managers can change how the business thinks for the better and can help in this fight against larger global competitors.”

The backdrop: the entrepreneurial spirit of Canada’s family businesses drives the national economy. These owner/managers have built strong businesses focused on continuous improvement, innovation and a commitment to their people and communities. Many have grown their businesses from the grain of an idea to a point where more sophisticated processes, technology and skills are needed to take the business to the next level. In order to reach their full potential and compete on a global scale, they may need to open their minds to the idea of bringing in non-family professional management.

Consider the findings that emerged from Creating a lasting legacy, the Canadian supplement to the 2012/13 Global Family Business Survey: 69% of respondents from coast to coast cited finding top talent as their biggest internal challenge. At the same time, 49% are not planning to pass the management of the business on to the next generation in the next five years, either because they don’t believe the next generation wants the job, or because they don’t have the skills and capabilities to manage and grow the business. Of those family businesses that do anticipate handing over management to the next generation, 44% share the same concerns. Not surprisingly then, some of the respondents point to corporate structure and a lack of expertise as negative differentiators in family businesses. “Once a business grows to a certain size, and we often see it when companies hit around $100 million in revenue, the game changes. To be able to scale the business, there is a foundation that needs to be in place. The fact is, family business leaders usually know in their gut exactly when it’s time to move to a professionally-managed team,” says Tahir Ayub, Canadian Private Company Services Leader, PwC. “Most family business owners know the limit of their skill set and that of the next generation and realize they will need to bring in professional managers to achieve the next level of growth. The tough part is taking action and going about it in the right way.”

Over the next five years, Canada’s family businesses are gearing up to defend their market share in the face of aggressive global competition. “Whether a succession plan is in place or not, whether there will be a sale or not, professional managers can change how the business thinks for the better and can help in this fight against larger global competitors,” says Ayub. “Finding and bringing in the right professionals to run the company provides family businesses with deeper, more broadly skilled individuals—non-family members—who have worked in other companies and grown those businesses. Professional management brings new thinking into the business, which in turn leads to innovation and growth,” he continues.

Still, handing over the reins to a professional management team is a tough sell. Family business owners are used to making all the decisions and it’s hard to let go. Here are some proven strategies to smooth the transition to a professionally-managed team and help ensure the long-term viability of the family business in the process:

  • Get buy-in from other family members before you start the journey. This requires having stong protocols in place. Establish a family council. Have a clear charter outlining where the family will be involved and where professional management comes in. “A lot of the legwork should be done up front. Often families that move to professional management don’t have clear succession plans in place, or there are so many family members involved in the ownership of the business it’s difficult to address internal succession,” says Ayub. “Professional managers can help secure the sustainability of the business and help avoid family conflict.”
  • Get professional support from your trusted advisor early in the process and talk to other family businesses that have been through the transition to learn how they dealt with it.
  • Establish long-term incentive plans tied to building the overall value of the business. This year’s findings show that only 21% of respondents offer share options to non-family employees. Allowing key managers to share in the growth of the business by tying performance to an equity stake is a strong motivator to build the business for long-term success.
  • Look for the right skill set. Have a clear understanding of where the weaknesses lie within your business and look for individuals who have that expertise.
  • Allow the executives you bring in the room to do what you’ve asked them to do, without interfering. Trust their level of expertise and be open to new ideas and processes.

Finding the right people, then letting go and allowing the new team to make decisions is the hardest part of the transition to a professionally managed team—but it is also the most critical. “Family business owners are not used to hiring CEOs and COOs and then stepping back,” says Ayub. “It typically takes one to two years to get this piece right. But when you do, the new team will help you execute the vision and strategy in a new way. They will help the business grow and that’s the goal.”

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Let's Talk is part of our PwC Private Business Exchange program — a dynamic, interactive community of private business owners and executives. To read all articles in the Let's Talk series, please follow the links below:

Making time to grow your business
Roadmap to a successful social media strategy
Plan more, Pay less: Effective tax strategies for your family business
Planning the next move: Successfully transitioning to a professionally-managed business
Succeeding through succession: Using succession planning to build value and talent
Growing mobile
Driving growth with your supply chain
Advancing the growth agenda
Making strategic planning real
Connecting With Social Media
A business case for sustainability
A Healthy Family Business
The 21-Year Rule is Taxing on Family Trusts
U.S. Estate Tax Laws: What you need to know
Embracing the Power of the Cloud
Internal Controls
Fighting Fraud
Five Steps to a Greener Business
Freezing Your Estate
Maximize Your Tax Savings
Risk Management
Dealing with Your Banker