Family business succession planning – a guide

It is important for every business owner to have a succession plan in mind, whether they’re starting to think about retirement, considering taking a step back or their business is still in its early days.

When the business in question is a family business, succession planning takes on a new level of emotional meaning, on top of the practical considerations.

Family businesses of all types make use of our succession planning services to create and refine their plans. Here, we give our guidance on what to consider when thinking about family business succession planning.

What is succession planning in family business?

Succession planning is when a business replaces its leadership and, in a family business, the leadership is often replaced with someone else from within the family – often the next generation.

The reasons for a change at the top can be wide ranging – the founder may want to step back from the business they built, they may want to retire or they may feel that the time is right to give control to another member of the family.

Why is family-owned business succession planning important?

The aim of family-owned business succession planning is to secure continuity for the business, so that it can continue to run smoothly throughout and after the change in leadership.

A founder or leader departing a business means change for everyone and needs to be well managed. A poorly-managed succession plan can create unrest and can be disruptive to a business.

The big risk with a family business is the old adage of the ‘three generation curse’ – the first generation makes it, the second generation maintains it, the third generation destroys it.

For a business to be successful, it needs to have people running it who want to make it a success – and this means that, if the next generation is to take over, they need to have the skills and the motivation to make it work.

Succession planning is about putting the right talent in place who will keep the business moving forward. In the case of family businesses, it’s important to remember that, in some cases, this may not necessarily be the owner’s child or children.

How can family businesses prepare for succession?

If the family business succession plan is for the owner’s child or children to ultimately take over the company, it is important that they develop their skills and gather experience so that when the time comes, they’re ready to take the baton.

As the owner passing over control, consider what skills your successor will need to bring to keep advancing the business and adding value to it. This is a good way to identify any particular areas of knowledge they need to gain to be ready for succession.

It’s desirable for them to arm themselves with skills, knowledge and experience gained from education and working in other businesses and fields. Then, when the time comes for them to take over, they can bring something new to the business.

You may feel conflicted between being loyal to your family and to your business when considering your succession plans – what’s right for one might not be right for the other. But remember that there are some great family business success stories and, to become one of these, it’s important to ensure the right talent is in place to ensure success going forward.

When should family business succession planning begin?

Family business succession planning is something which can be discussed with children from a young age, and it’s advisable to do this. If your hope is that your children will take over from you in the future, it’s important for them to be aware of this so they are ready when the time comes.

Ideally, they will bring their experience and knowledge to the business, earned from completing their education and having careers of their own before joining the family business. When families talk openly about plans for the business and its succession, there is the chance to plan ahead to ensure that these skills are in place.

Equally, discussions with your children may uncover that actually, they do not wish to follow in your footsteps – they may have no interest in joining the family business or they may wish to pursue a career in another field.

Identifying this at an early stage can give you the chance to make alternative plans. It may be that another child or family member is identified to become your successor, or you might bring new talent in by seeking a successor from outside of the family unit.

What are the potential challenges of succession planning in family business?

With the added factor of family dynamics and all the emotions involved, succession planning in family business can present potential challenges.

If you have multiple children, choosing one child to become your successor has the potential to cause conflict within the family.

The act of handing over control of your business to your child can also be challenging – some people may struggle to relinquish control and may find it difficult to see a successor running the business in a different way to how they would do it.

It’s important to remember that a smooth transition which maintains the status quo as much as possible is good for the business and helps to ensure its continuing success – this is why thorough succession planning for family owned business​ is key.

Speak to us for succession planning advice

For more advice, see our tips on succession planning for a harmonious family business.

If you have a question or are looking for support on family business succession planning, our expert team is here to help. Please get in touch, or find out more about our succession planning services.