Say "family business succession" and people think of mom and dad retiring to the golf course while their sons and daughters take the reins. What seems like an idyllic life for the senior generation, though, can be challenging emotionally for the individuals and financially for the business.
"For people who have spent their lives in a family business, that enterprise has typically been their passion and their identity," says Paul Karofsky, Founder of Transition Consulting Group, Palm Beach Gardens, FL. "If suddenly Mom and Dad are doing nothing, that can be devastating to their self-esteem."
It's best to rethink the very concept of succession, says Kathyann Kessler Overbeke, principal of GPS: Generation Planning Strategies, Beachwood, OH. "The word 'succession' implies that someone is going out and someone else is coming in," says Overbeke. "That makes the senior generation feel obsolete, and can even take away their identity if it is closely aligned with the business."
The fact is that members of the senior generation can still contribute to the business, and they should if they want to, says Overbeke, who suggests replacing the idea of succession with that of generational integration. 'You are really integrating two sets of knowledge," she says. "The older generation has tacit and explicit knowledge (how the business operates) and the younger generation has explicit knowledge (what is happening outside the business). The latter includes matters such as new developments in technology and the buying habits of younger people."
A successful transition plan includes an enhanced role for the older generation, says Karofsky. "Maybe that role involves focusing on special projects, or starting up a new venture, or activity in the world of philanthropy. At the same time, everyone has to realize you cannot fit two rear ends into one seat, so there needs to be an ability to let go."
Are you ready for the transition?
When the time comes for a new generation to take control of your family business, will the process go smoothly? One way to find out is to take the quiz below. Give yourself 10 points for every "yes" answer.
1. Have you established a structured plan to transition your business to a new generation of ownership?
2. Has each family member communicated a personal vision of their role in a business transition?
3. Have all family members bought into a shared business vision?
4. Are all members of the junior generation involved in some way with the business?
5. Has each member of the junior generation begun a program of education to meet the needs of his or her desired role in the transitioned business?
6. Has a role been established for the senior generation in the business transition?
7. Have you considered the use of nonfamily interim managers?
8. Have you established a system to provide career satisfaction for valued nonfamily employees who might be shut out of advancement into management positions?
9. Have you shared your transition plans with interested third parties such as customers, vendors and bankers?
10. Do you have a solid understanding of the financial requirements (including any requisite funding for buyouts and taxation) for a successful transition to new ownership?
Total your scores, then rate your transition readiness on the following scale: 90-100: Congratulations! You are well on your way to a smooth ownership transition. 70-80: You have addressed your needs for a successful transition and need to do some final paving on the road ahead. Less than 70: Time to preserve the future of your enterprise by taking productive steps toward a smooth transition to a new generation.