We know how difficult it is to start a business. But running a family business and handing it to the next generation presents its own set of challenges.
When it’s time to hand over the baton, the founders of the family business may not find it easy to just let go. They may feel that they can still manage the business or maybe they are not confident that the next generation can sustain the business.
Here are some of the challenges family businesses often encounter when it comes to succession.
Identifying the successor
Who should be the next one in line? What should be the qualities of the person to lead the business?
Most often, the eldest child of the founder is seen as the successor. However, there are instances wherein some of the children may not be even eager to be part of the family business.
The best bet is the one who truly has his/her heart in the business. The next manager should be enthusiastic about running the company, not just for the money. He/she should be happy to continue what the previous generation started.
The successor should also be someone who understands how the business operates, knows the company’s culture and its keys to success, and most importantly, has the right mindset and skills needed to sustain the business.
Creating a succession plan
Set realistic and attainable expectations by developing goals that create value for the business. Make a timeline for each step that needs to be taken, taking into consideration the age in which the owner expects to retire. This will make the transition easier.
In creating the plan, it is important to communicate with the family members, management, and advisors. This allows others to give their own opinions which can help improve the succession plan and make it more effective.
Once the succession plan is finished, it needs to be updated every few years. As change is inevitable, the succession plan should be revisited every few years to see if there are improvements that need to be implemented.
Feeling of nostalgia and remorse
A founder always sees his/her business as his/her baby, which makes it difficult to let go. The founder may feel the need to pass on the throne so that the business may continue and prosper, but he/she may also feel hesitant to draft a succession plan as it would mean ending to his/her role in the business.
Acquiring a business valuation
It may be difficult to make decisions regarding the succession plan without an understanding of the current value of the business. Changes may occur over time and therefore, having a business valuation is essential for planning purposes. This creates a reliable number that can be presented to potential buyers.
Business succession can be done in three ways. One is by gifting it to family members, employees, or other individuals. It can also be sold to employees or third parties. Lastly, it can be sold to a strategic buyer.
But, no matter how the business is handed down by its founder, a clear and good succession planning should be made to ensure a smooth transition.
A founder may love his business but sometimes he/she just needs to let someone continue his/her work and just pray that everything works for the best.
It can be difficult to admit that we are growing old, but we should let the next generation do their share.
For more information, you may contact Armando "Butz" Bartolome
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