Introduction
A family business is any setup that has been made by members of a family without the links of an external enterprise. Running a family business is a tough venture for every individual who is indulged in it, and the most difficult aspect of it is to keep it running smoothly after it is initiated.
Approximately 80 percent of the businesses around the world are owned by families, and hardly 65 percent of them manage to survive for long (“Survival of a Family Business,” 2008). They usually encounter pitfalls, drowning large sums of money without any gains. This may be due to a lack of awareness of how to go about the business and keep it running with the help of adopted strategies. There are a number of things to be kept in mind for achieving success in business, the most essential of which is to make a succession plan.
Succession Plan
No matter how long an individual can lead a family-owned business, there has to come a time when the business will be passed on to the younger generation for it to continue. It is never guaranteed that the coming generation who has taken over will produce good business at the same pace. However, this passing on of the business to other individuals, who are the successors, is a crucial phase in the running of the business.
The succession or exit plan that a person makes for the continuation of the business is named the succession plan. It is an outline of the person, or people who will be held responsible for the carrying on of the business after the preceding leader or leaders are unable to run it any longer (“How Do I Develop a Succession Plan?”). A succession plan is significant in the transfer of the business, and if a smooth accession is required, then proper planning is the key factor (Finn, H., 2008).
Need for a Succession Plan
Just because the passing on of the business seems to be an act to be undertaken after a number of years, it does not mean that a plan should not be made right at the moment. Every business should have a succession plan because of its impact on long-term profitability.
Family businesses often do not succeed due to disagreement upon the following factors:
- Business requirements.
- Alterations in commitments and expectations of family members.
- Lack of communication.
- Lack of succession planning.
The needs of the business are overlooked in family businesses, as compared to a corporate business. Instead, more attention is paid to the family members’ needs. Thus it is essential to look at the family member needs as well as the business needs, despite the trouble that is created between siblings and cousins, and there is a dire need for a succession plan to be made as early as possible to avoid future conflicts.
Absence of a Succession Plan
The absence of a succession plan or the delay of one may lead to problems in the future. When the business is being handed over to the second generation, there are still many factors that both generations agree upon, and there is a smoother succession if it has been planned earlier. If there is no plan for implementation, the business will be affected. A good and timely plan ensures future stability of the business and profitability, along with the surety of the company not dissolving (“Survival of a Family Business,” 2008).
Factors to be Kept in Mind While Creating a Succession Plan
Since succession planning is not an exact science, it is difficult to follow a set of rules for implementation. Generally, the following steps are taken while forming the plan:
- The successor – the choice of the successor of your running business is a difficult one, as you cannot make it in a short span of time. The successor has to have the knowledge, skills, and ability to enable the business to run as it did earlier, if not better. Therefore, an analysis of the employees has to be made first, to choose the person who will have to shoulder maximum responsibility of the business. Lesser emotion and more objectivity have to be ensured while making this important decision.
- Training the successor – the most important functions of the company can be identified, and the successor can first be made to work in these areas. His performance can be seen, and he should be allowed to exercise his own ideas in some places. Patience is needed for this, as things may seem strange to you but may benefit the business in the long run. More profits can be gained by the diversity of thoughts and ideas put into the running business.
- Time table – for the success of the succession, it is important to establish a timetable that enlists who will perform what tasks and the timings of task performance. This timetable may prove advantageous for the successor, motivating him to work when you are not a part of the daily routine activities any longer. The management also needs to be aware of the successor’s activities.
- Preparation for Retirement – an early retirement should be planned, giving more responsibility to the successor by the passing days. Taking over these responsibilities will enable you to spend time planning how you will spend your time once you are not in the workplace anymore.
- Fitting in of the Successor – the successor is the main person held for the responsibilities of the business once you have left. The future of the company is dependent on him, and it is up to him to succeed following your training.
An additional factor that needs to be kept in mind while making the succession plan is to take the assistance of some advisers like the accountant or insurance professionals for the impact that will be laid from taxes and other investments.
The successor has to face many new challenges after being given authority over the business. Everything in this senior position may seem new, and he may be indecisive regarding many issues. A lot of confidence-building is involved for this position, as well as the ability to gain the respect of family members, taking the history of the business as a learning tool. Another important point is the gain of the respect of customers, in this broad and fast-paced business world.
Conclusion
All these challenges are well worth the effort if you can view your business grow and flourish due to your proper guidance. The succession plan and its execution will be a milestone achieved for the progress of your future generations.
References
Finn, H. SCORE 2008. Web.
How Do I Develop a Succession Plan? 2008. Web.
Survival of a Family Business: Need for a Succession Plan 2008. Web.