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We share insights on how to overcome succession planning challenges for family owned businesses
Statistics show that family enterprise is the most common form of business ownership in the world. In Europe and Asia, some businesses have been family owned for 10+ generations, or several hundred years. In Canada, it is estimated that some 60% of the GDP is driven by family businesses that employ more than 6 million people. Ironically, research on family business have only gained significant traction over the past 50 years.
Many families that carry out business together feel isolated by the challenges of working in such a unique and personal environment. In reality, many families face the same complications regardless of the industry they operate in or the size of their business.
Here are five common challenges of business succession planning, of which with consistent effort and dedication can be overcome:
As families grow and become older, their goals and values often evolve and become far more diverse. One family member may want to build the business for future generations while others may want to harvest the existing equity. Cousins who grew up in different households will usually share some values while being very different in other respects. Managing these different goals and values can be a significant challenge.
While there is no one secret formula to successively navigate a family business through the numerous family and business issues that will arise, there are best practices that help families deal with issues relating to the family business as they arise.
The three items below is one way to understand the interrelationships present in a family enterprise. Each item is a separate system but overlap in a family enterprise. Each item listed below must have its own governance, goals and objectives and must be aware of their order for success to be achieved.
Ownership circle board of directors/advisors
The CEO of the business reports to the board and the board reports to the shareholders. By having a diverse and complimentary board, the business benefits by having a clear and well thought out strategy, depth of experience for guidance and a reporting methodology. The board would hold the CEO responsible for implementation of strategy and management of the business.
Business circle – strategic plan
The process of creating the strategic plan best prepares management to see issues as they arise and respond in the best fashion. The process of planning is invaluable because it allows the management team to focus on the business’s strengths, weaknesses, opportunities, and threats.
A family council allows the family to meet regularly and deal with their needs. Family unity can be achieved in many fashions, but to ensure full and open communication the family should establish its own constitution, councils, and regular meetings.
When these complications and challenges are managed well, family businesses can have tremendous advantages over non-family businesses
This article is intended for general information only and is not intended to apply to any specific situations or to constitute legal advice.
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