How do we keep the family-owned business in the family? More specifically, how do we keep our son and daughter happy, so that they stay in the business?
Thoughts of the Day: Figure out what’s best for the family-owned business. Start with understanding the needs of both the family and the business. Learn how to work through disagreements and manage conflict among family members. Then attempt to work through succession planning for the business. Test participants before handing over the reins. Hand over the reins before it’s too late.
Keeping the family-owned business in the family
Make the company the first choice, not the last resort. Joining the business is a right that is earned. Make it too easy and they take the company for granted. Make it too hard and they go elsewhere.
Invite family members in, but make them earn their way. Set up a timetable for learning the business and see if they can stick to it. As competence is demonstrated, hand over increasing amounts of authority, including stock. If obstacles come up, consider options outside the company.
Determining what would work best for the business and for family members means taking a detailed inventory of what both need and are able to provide. Think in 5- to 10-year time frames.
Building a business that lasts
- Can the company project income for the next 5-plus years? Is the company able to grow predictably?
- How much of the company’s estimated net income is already committed to paying for debt and building reserves? How much is available to pay for additional family members to join the company?
- Can the company afford to pay livable wages to family members? What can family members earn elsewhere? Can family members’ income increase as they progress? How does that match their expectations for future earnings?
- What can family members do that would be valuable to the company? What job openings exist inside the company? Would any current employees have to leave the company to make room?
- How much training would family members need to qualify for job openings? Are family members willing to work their way up as they learn the business?
- What does the company need to know to keep growing? Are family members interested in learning about these things? Are they learners?
- Who would family members report to? Will they give critical feedback? Can they adequately train new entrants?
- What outside training would be needed, and at what cost in time and dollars?
Are there outsiders (nonfamily members) who are better qualified? If so, why are family members the optimal choice?
As you can see, questions center on who does what, who reports to who, and how much money there is to go around.
Create a long term plan
Assuming that you can get past the above questions, take a look at how well family members work together outside the business. Have they learned to manage conflict, subordinate personal gain, work well on teams and think strategically about what’s best for the group? These are critical success skills for owners. If family candidates don’t possess these skills, have them practice elsewhere first.
Find out if family members are able to learn the skills of the business and if they can develop the critical thinking and leadership skills they’ll need to run the business. Treat them like interns who should be soaking up learning opportunities. Make them earn their way into management roles.
On the other side of the spectrum, as family members step up and prove themselves, don’t wait too long to hand over the business. A challenge for senior family members is giving up control. Put milestones with timetables in writing, to hold both current and future shareholders accountable. Resist the temptation to let dates slip because one or the other isn’t ready. As progress is demonstrated and the next generation moves into place, ready to take over, make sure that the current management team steps aside to let them do so.
Looking for a good book? Try “Strategic Planning for the Family Business: Parallel Planning to Unite the Family and Business” by Randel S. Carlock, Craig E. Aronoff.