Within family businesses, tension can arise if the current leaders are unwilling to relinquish control and the next generation is eager to take the reins. In fact, over the centuries it is precisely these tensions that have seen many family businesses and even personal relationships come to an end. It is for this reason that the ability to seamlessly transfer ownership of a family business to the next generation is widely regarded as one of the ultimate measures of success.
Data from 2020 illustrates that in the UK, there were 4.8 million family businesses employing almost 14 million workers and contributing £575 billion to the economy. So, family businesses have certainly proven that they can be innovative, adaptable and forward-thinking throughout the generations.
So, let’s take a closer look at some of the things successful UK family businesses have done throughout the succession planning process to ensure transitions are as smooth and seamless as possible.
The Importance of Early Planning
Succession planning is an important element of the management cycle and should be viewed as an ongoing process to ensure that all critical business roles are filled by the right people.
When the topic of succession goes undiscussed for a long time, it can very quickly become the elephant in the room that is pointedly overlooked. However, addressing the notion of succession as early as possible ensures that important conversations can be had, tensions can be eased, and all parties are on the same page.
The Process of Choosing a Successor
When the idea of choosing a successor is viewed as a process rather than a singular event, it provides the current generation of decision-makers with the opportunity to lay strong groundwork that will enable a seamless transition.
Although the first-born child has traditionally been viewed as the most natural choice for a successor, it is important to ensure that any successor has the right skills and knowledge to continue driving success into the future. And there’s research there to back this up.
A study looking at 432 family businesses in Italy found that those who were bound to the idea of tradition were most likely to select the first-born child as the successor. However, businesses opting to appoint a younger child as a successor saw the value of their assets increase by 39% on average.
This is not to say that first-born children do not make excellent successors; rather that it is crucial to make that decision based on who is the best candidate for the role.
Communication and Conflict Resolution
Approaching the succession planning process with full knowledge that there are many things that may go wrong is key, as it will help you to remain adaptable and prepare you for what might be a bumpy ride.
Conflict in one form or another is often part of the overall journey that you will need to navigate, but if you view it as natural, then you’ll find it easier to ensure that it doesn’t get in the way of the decisions that need to be made.
It can be beneficial to work with a trusted external partner such as AK Tax & Accountancy with the skills to provide expertise in all aspects of succession planning, including conflict resolution and legal structuring.
However, regardless of how you approach this aspect of succession planning, know that it is through navigating conflict that decision makers should find unifying goals and objectives that you can focus on as a collective. Navigating conflict can also help the process in numerous ways, including by encouraging families to improve their communication skills which can be beneficial both personally and professionally long into the future.
Training and Mentoring: Preparing the Successor for Success
It is not enough to simply hand over the reins to the next generation without first progressing through a process of training and mentoring. In practice, this can take many forms but must ensure that the successor has a solid understanding of the cultural, historical and strategic foundations that have allowed the business to flourish.
Often, the training and mentoring process works best when the successor also has the opportunity to learn from key employees within the business, as this often provides a more comprehensive overview of the business as a whole from more than one perspective.
Importantly, however, it is also vital to genuinely listen to the perspectives of the next generation, as they will naturally have their own, fresh ideas to bring to the table that deserve to be heard.
