Best Succession Plans
Strike Healthy Balance

Over 90 percent of the 15 million businesses in America are family-owned and managed. In order to survive, they must deal with an increasingly competitive business environment and also overcome the tensions that frequently accompany family involvement in the business. Most such entrepreneurs hope their business can be passed on to their children.

However, all too often, poor planning, lack of successors, tax problems, family conflict, and poor balance sheets prevent the next generation from realizing the full value of the business. This article focuses on a few of the "emotional and psychological impediments to preparing for business succession" and how critical those dynamics are in impacting a successful blend of family and business during such transition.

In every family business there is the challenge of how to balance priorities between the family and the business. For example, when the interests of family members have the highest priority, decisions in the business are based primarily on how they best serve the family members. The business potentially could be a haven for incompetent and overpaid family members saddled with positions that are unnecessary expenses to the business. Successful family businesses seek to find the appropriate balanced approach where the long-term interests of both the family and the business may be served.

Business succession is a transition process and there are two huge questions that an owner-operator must have answered in order to ultimately find his/her "peace of mind": (1) Can the family sustain the business? and (2) Can the business sustain the family? These two questions are inextricably linked. Most business owners realize that effective retirement plans, estate planning, transferring management, and transferring ownership will require that they tend to a number of difficult family issues. What are some of the tough family issues they will face in preparation of succession planning?

Psychological Impediments to Family Business Succession
Perhaps the biggest psychological issue in family business is the "need for boundaries". Conflict resulting from the overlap of family and business cannot be avoided but it can be minimized if appropriate boundaries are established. Many families are never free from the business because it completely dominates every aspect of their lives. However, successful families are able to set boundaries between the two so they can enjoy the benefits of the business while enjoying a normal family life. In the case of the the business, it is very important that the family members earn promotions on merit and are evaluated on the same basis as employees, and are compensated according to market levels.

Common issues such as entitlement, greed, double standards, where to start in the business, and reasonableness of family member compensation often stem from a combination of not setting the correct boundaries on the front end as well as establishing objective and consistent policies within the organization that family members must adhere to as well.

"Letting go of the controls" is perhaps one of the most difficult factors for the owner-operator to accept. For many owner-operators, the business has been his/her whole life and to some degree, sense of purpose and identity. To transition and "let go of the reins at some point" can be a source of great fear and not surprisingly, many such owners, unconsciously and/or consciously resist the transition efforts. Most importantly, from an advisory perspective, the owner-operator must replace the perceived sense of loss with a renewed sense of gain.

The third issue to address is "secretiveness and poor communications". This issue probably accounts for more distrust and family breakdown than any other single factor. Secretiveness and poor communications go hand in hand. I have a client that is 95 years old. The client’s oldest son is 68. The client does not have a succession plan for his business and his son would say that his Dad told him years back that someday it was all going to be his. Little did he know his Dad might out live him! This is really more of a story of poor family communications as well as an owner-operator that obviously had a difficult time "letting go". The result was poor planning.

Typically members of strong families have the ability to share open and frequent communication with one another about what is happening in the business as well as they find time to mutually support and appreciate one another. This is very encouraging news because happy family members who are open is their communications tend to be able to resolve their work-related conflicts more effectively (if they are operators in the business) or make better Family Board/Council Decisions( even if they are not operators in the business). So clearly, secretiveness and poor communications inhibits family business healthiness and effectiveness.

In summary, family businesses are emotional, complex, and yet, the heartbeat of American business. If we are to understand business succession, we must realize that there are emotional and psychological aspects to successfully preparing for such transition. Owner-operators ultimately must come to realize that there are essentially two questions that must be answered to overcome their fears and make the transition success: (1) Can the family sustain the business? and (2) Can the business sustain the family?