How to Smoothly Transfer your Business: Lessons for our Invesitgation

From the interviews conducted by the partners in the first phase of the project – R1, it was evident that external advisors are the most capable of supporting the succession process, and therefore a succession process should not be undertaken without the assistance of external advisors. The project is currently in its second phase – R2 – where we have been working with partners to explore the area of succession through best practice examples. Below, we present some of the findings useful for business owners thinking about going through the succession process.

Passing on a family business to successors is a major challenge. It is usually the case that the owners have clear aspirations but no clear path to reach their goal. The timely transfer of responsibilities and the organisation of the ownership structure are the cornerstones for the long-term success of any business, especially a family business.

If choosing successor is proving difficult for business owners, they may wish to consult with a consulting firm. The successor must have an appetite to take over the business. Candidates who do not demonstrate genuine interest in the specific area should not be considered. In order to ensure a smooth transition, it is recommended that the successor works together and shadows the owner for a period of time prior to succession.

A successful transition from an owner to a mentor requires the ability to collaborate and work well with the successor. You must possess the right competencies for training and developing the successor in addition to accepting the fact that they may have different values from you. Accepting that they may have a different vision and impose their own culture on the organisation is essential. A strong leader with excellent communication skills is required here, as well as the ability to motivate and inspire the successor.

It is important not to underestimate the amount of time that the succession process will take from beginning to end. It takes an extensive time period to develop an effective plan, selecting a successor, obtaining finance from the banks or other financial sources, working with external advisors, coming to terms with the transition emotionally, and guiding the successor.  You should have the ability to plan and comprehend the gradual nature of taking over, defining clear goals, and planning your timeline.

It is also important to highlight another aspect, namely the relationship between successors and within the family in general. Underneath the surface there are often different emotions or even grudges between family members which may affect the process of succession. Psychodynamic approaches require constancy, persistence, control and ongoing adjustments of processes and methods. A sincere desire to develop, which provides sufficient motivation, is needed on both sides – in the company among the family members and with the consultants.

In addition, good negotiating skills on both sides are crucial. Especially in a family environment, it is important to overcome disagreements and difficulties without affecting family relations. Developing good negotiating skills saves a lot of time and energy spent on aligning everyone’s vision.

 

Lessons learned:

• Both existing and new entrepreneurs need to possess strong accounting skills or be able to ‘sit down’ with an accountant and understand the bureaucracy related to business transfers. It is helpful to rely on an external person for support.
• It is essential to consider the realistic capacity of the business when designing fair agreements. A business is an entity that generates money for family members in the long term. It is therefore important to take into account the future development of the business when making agreements. If the business is stifled, future agreements will not materialise.
• The timely arrangement of fair integrated family arrangements is key to the successful continuation of the business. This also preserves good family relations.
• Genuine motivation and desire of successors to take over the family business is paramount.
• Successors should have their own vision and clear strategy for the further development of the business.
• The desire of the parents to pass on the responsibility in a sincere and timely manner before retirement is key.
• The key is not simply that the successor takes over the business, but that he or she succeeds his or her predecessors (and that the successors are at least as successful as their parents).
• The importance of an agreement within the family circle for an equitable division of assets that includes the wishes and will of all family members.

 

In conclusion, whilst succession planning is often overlooked and delayed, it should instead become an integral part of business planning. Succession is not just about selecting a successor; it’s about nurturing their interest, collaborating effectively, and accepting differences. The process is time-intensive and requires careful planning, negotiation skills, and a focus on maintaining family relationships, as well as external advisory in many cases. Ultimately, the goal is not just a transfer of power but a continuation of success that benefits all family members.

 

References:
Extracts from the interviews, All partners

Nawrocki, T., Jaffe, D., & Goad, K. D. (2005). Family affair: The emotional issues of succession planning. JOURNAL OF FINANCIAL PLANNING-DENVER-, 18(7), 34.