If there’s one thing family businesses have learned from the COVID-19 pandemic, it’s that they must be ready for the unexpected. Over the past year or so, business continuity planning became critical as family business leaders looked to navigate sudden changes like shutdowns, new health and safety requirements and shifting customer behaviours.
Within the bigger picture of business continuity, one area that rarely gets enough attention is succession planning. With half of first-generation Canadian family businesses expecting the next generation will be the majority shareholders within five years, this should be top of mind. Yet according to our Family Business Survey 2021, only 34% of Canadian family business leaders said they have a robust, documented and communicated succession plan in place.
Succession planning is about more than determining the next leader of a family business; it’s about setting a foundation for protecting the family’s legacy even as the torch passes to the next generation. The challenge is that while a lot of family businesses may have thought about succession planning, dealing with it can be an emotional and stressful experience. This can lead many to avoid the issue for too long.
Dealing with succession planning sooner rather than later can help families better prepare for unexpected events like an accident or serious illness, which can be devastating for the business and the family. Having a clear plan in place that everyone understands also avoids dissent and stress that can set businesses back and tear families apart.
Succession planning is an important way for family businesses to lay a solid foundation for their path forward. Many families use it as an opportunity to identify new ways for the business to evolve and grow. For example, engaging digitally savvy next-generation family members might lead to conversations about digital transformation that those currently running the business haven’t yet considered.
In navigating succession planning, it’s important to take a broad approach that considers the overlapping dimensions of being an entrepreneurial family, maintaining the responsibilities of running a business and understanding the complexities that exist within any family dynamic. Family leaders that take this approach will likely find that their succession planning activities generate new insights and opportunities across all of these intersecting dimensions. They can then use these insights to inform current activities even while planning for the future.
For family business owners ready to document their succession plan, here are four key elements of the process:
As a starting point, look at how much capacity you have for succession planning. This means assessing whether you have people ready to manage the process, are prepared to fully engage family members and have the resources to develop the plan and see it completed successfully.
In setting out your succession plan, it’s important to keep the focus on your vision for the business. This means including a set of transparent go-forward objectives to guide future decision making. This can help reduce friction within the family, particularly when stressful situations arise. When considering your go-forward objectives, it’s important to continue to look at all of the aspects that impact your planning as business owners, leaders and members of a family.
Engaging with your family members is a critical part of succession planning. It can help you determine what the role, if any, the next generation wants to have, the support needed to make sure successors are ready to take over and whether you should look at alternatives such as selling the business. This process should include speaking to people individually to let them express their views freely before bringing family members together to discuss findings, address areas of dissent and agree on the plan for the future.
A succession plan, like any business continuity initiative, shouldn’t be a static document. Think about how you’ll revisit and update the plan as needed based on business or family circumstances. What will happen, for example, if a family member gets married or divorced? These are important questions to address in advance.
As we’ve learned over the last year, anything can happen. As you look to protect your family’s legacy, consider taking the time now to think about your succession plans and clarify the values and objectives that will keep your family focused even in the event of the unexpected.
By developing a fully documented succession plan now, you can create more certainty for the future, reduce risks and identify new opportunities to help your business—and, importantly, your family—thrive in the long term.
Ready to discuss the questions and challenges you’re facing as you plan for the best ways to protect the legacy you’ve worked so hard to build? Reach out and start the conversation today.