Family businesses and key questions on succession planning
Family businesses can have unique pressures as family dynamics and history can add another layer of complexity to business planning, decision-making and, ultimately, business succession. In a Q&A, Sylvia Azoulay, Vice President, Tax and Estate Planning at Richardson Wealth addresses key questions by business owners on the integration of the next generation into the family enterprise, key planning considerations and the role of values within the business.
Q. When should you consider either bringing the next generation into a family business, or the rising generation into a more senior leadership role within a family business?
Sylvia: When a family business exists, it often permeates the fabric of family life. In that sense, the rising generation is essentially born into the family business and may be exposed to it at the dinner table or at the business premises. When these individuals are young, absorbing the family values and learning about business is more informal.
In general, we believe it is wise for the next gen to become more formally involved in the family business after they have pursued post-secondary studies that are of interest to them and after having some experience in the workforce with other employers. In this way, they are exposed to learning and opportunities offered elsewhere, which provides them with a chance to discover their talents and passions. They also get a chance to learn from other business leaders and mentors. This could provide rich experiences that can then be applied to the family business.
Working outside the family business gives them the advantage of discovering what roles they are suited for and whether they really want to be employed in the family business. That said, there are not always superior employment opportunities outside of the family business and this approach is not always appropriate or possible.
Where there are diverse learning opportunities and the young person is passionate and interested in the family business, it may be more advantageous to get them involved early. Starting them with summer jobs as teenagers is one way to do this. In order to stave off entitlement attitudes and for proper career development, they should work their way up in the organization by undertaking various roles and they should be paid fair market compensation just like others in the same roles. In order to groom them for leadership roles, they should participate in additional training courses in leadership and management and be matched with a good mentor inside or outside the business. The family may want to extend the invitation to join the business but should also be flexible and open to letting the next generation pursue other interests if they would find that more fulfilling.
Q. What are some considerations to keep in mind when balancing the preparation of the next generation to succeed in a family business with allowing them to place their own stamp on the business?
Sylvia: It can be difficult for the current generation in the business to accept new ideas or approaches that might be suggested by the rising generation. The wisdom and experience of the current generation is very valuable, but it is equally important to encourage entrepreneurship and be open to creating new lines of business or new methods of running the current business.
I would suggest that the current or founder generation be willing to allow the next gen to take some small risks within the family enterprise to encourage creativity and learning, and gradually build towards more important decision making and leadership roles. The current generation needs to make the rising generation accountable for their ideas and approaches. Also, having the rising generation make a business plan is great if the current generation is sincere in listening to it and even helping them develop the plan.
Q. How do you help families to infuse their shared family values into their business? And do shared values impact business success?
Sylvia: Richardson Wealth’s Private Family Office holds meetings in the form of ownership meetings or family meetings, depending on the context. In these meetings, we always commence with a discussion of individual and shared values, family history, business history and then move to the articulation of a shared vision and mission for the family and for the business.
These are extremely important guideposts for the family that help them decide on business direction among many other decisions they will need to make as a family. This also forms part of the culture of the business that impacts employees and family alike. Family values are the foundation of strong successful family businesses and help provide the continued commitment and drive for family members.
Typically, consumers trust family businesses and even prefer to deal with family-owned businesses. Developing mission and vision statements for the business can have a strong impact on employees and customers, and build trust if the vision and mission are implemented in everything the business does. These statements need to be visible and imbued in strategic discussions frequently.
Smart succession planning can be the key to sustaining your family business so that it not only continues into the future, but flourishes. To help you create the right plan, contact a Richardson Wealth Advisor.