- by Sophie Pinkoski

According to Forbes, nearly half of family businesses world-wide don’t have a succession plan. Despite this, three quarters of these businesses intend on passing the reins to the next generation. With little to no involvement in the family business, next generations run the risk of unexpectedly leading the business following a health emergency, sudden death, or family fall out. Succession planning shouldn’t be in reaction to a crisis, rather it should be something prepared well in advance so that your family members are equipped to handle any eventuality, be it good or bad.

It may be a difficult conversation to have, particularly in addressing the inevitability of losing your loved one some day, but it’s these uncomfortable conversations that will prepare your family for the situation they find themselves in. Without these conversations about the business’ future and who will play a part in it, it’s easy to make assumptions based on what has been left unsaid. Older generations may fall into the trap of assuming there will always be a new generation to pass the business on to. But this relies on future generations expressing an interest in the business, which may not be the case. On the other hand, leaving the question of the business' future unspoken suggests to the next generation that you may intend to sell it. If they are completely left out of planning discussions, they may feel unprepared to get involved in the family business. This in turn can translate to perceived lack of interest from the older generation’s perspective. 

A clear, honest conversation about expectations and intentions for the next generation goes a long way in terms of clarifying everyone's place in your family’s business.

Keeping the next generations involved in ownership discussions, strategic directions, and/or operations reminds them that their contributions are meaningful to the business. Give them the tools they need to succeed.

Here are ways to prepare the next generation for inheriting the family business:

Build emotional ties to the business early– A benefit of having the next generation involved in the business is that they will have grown up with the family business as a natural part of their life. This is why an unexpected leadership in the face of a sudden death in the family can be more avoidable for the next generation than say, a widow suddenly inheriting with little to no knowledge of the business. You have the opportunity to raise the next generation with a strong working knowledge of the family business early on.

The business is intrinsically connected to your family’s values and legacy.

Sharing stories of how it came to reflect these important traditions within your family helps them understand their own history and develop a sense of pride and ownership in what they could one day lead.

Develop capacity– Next generation family members often feel unprepared to take on responsibilities of the business due to lack of opportunities to get involved in the first place. Exposure to the business on a regular basis as early as possible gives them the necessary experience needed to build their interest, confidence, and capacity to take on an active role. They can’t express interest in the business if they can’t envision a place for them there. This involves giving them plenty of opportunities to explore different areas of the business to find that sense of place. They can try on different roles and responsibilities to test what aligns best to their skills and talents. They’re not going to come into the business knowing everything right away. They need professional development first, which can come in a balance of education and on the job learning. Mentor them and let them shadow you at work.

No one knows the family business better than the generations who came before them.

But experience within the business isn’t always going to be enough. External experience is equally important, especially in terms of expanding knowledge, skills, and perspectives within the business, by spending a few years taking on roles elsewhere. Three to five years working outside the business broadens your family’s toolbox of resources to adapt to a changing market and uncertain future. To round out their development, ensure they are learning soft skills to build their emotional intelligence, communication, and interpersonal relations. Giving them a well-rounded development experience will mold them into great leaders, fully capable of taking on the family business one day.

Identify your family values and legacy– Succession is not simply a handover, but a long-term collaboration between generations. As such, it requires alignment between generations. Everyone must agree on the purpose and values of the business in order to work together harmoniously. This involves extensive discussions on what the family legacy actually means. Each family member may have a different interpretation of what the legacy is and how it applies to both the business and family. The key will be to find commonalities to take forward to get everyone on the same page. Honesty and transparency are crucial when identifying each individual’s role and level of interest in getting involved with the business. If a next generation family member is considered for succession, make sure they’re aware of it, lest they assume they’re being passed over and move on to other opportunities.

The family legacy is meant to evolve over time.

The next generation will have entirely different skills and interests that could take the legacy in a completely new direction. Let them bring their ideas to the table– their perspectives could inject fresh, innovative energy into the business, where it can modernize and diversify over time.

Succession planning is a deliberate, long-term process. It shouldn’t be a last-minute crisis response. The next generation of your family doesn’t have to experience unexpected inheritance if they’re being well prepared ahead of time. Bring them into the family business to learn the ropes as early as possible so they can organically find their place. Empower them to take pride in their family’s legacy that they might one day inherit. After all, the business and its legacy are something your family should grow together.

Further Reading

Preparing the Next Generation: A Family Business Roadmap, Family Enterprise Canada

Creating business continuity between generations, pwc

Four Considerations When Passing The Family Business To The Next Generation, Forbes

The Third Commandment Of Family Business Succession: Understand The Family's Rights, Forbes

Preparing the Next Generation: A Family Business Roadmap – Canadian Family Business Transition Intentions – Part 3, Family Enterprise Foundation

Next-generation Family Businesses Evolution Keeping Family Values Alive, Deloitte

Books | Every Family's Business | Willing Wisdom | The Happy Inheritor, Tom Deans