Succession planning matters in a family business
PUBLISHED: 12:19 22 August 2017
From manufacturing to farming, succession planning matters in a family business. Will Abbott, Partner at Randall & Payne, explains how to manage a smooth transition from one generation to the next
Many businesses struggle with succession. Considering the rural economy, farming is no different to businesses in other sectors in many respects but certain situations create certain problems.
The family situation needs care, the farm may have been in the family for generations and have considerable value but profitability does not go hand in hand with that value making it difficult to pass to more than one offspring.
Profits over the years may not have allowed much pension provision meaning older generations may need to stay involved past retirement date which may lead to friction with younger generations.
Does this differ from other sectors?
The answer is probably not – all businesses need to plan for succession.
The family will add an extra layer of complexity and farming is probably the epitome of a Family Business.
As is often the case with many issues faced in business, the key to successful change is to communicate early, clearly and often.
The friction between generations that was mentioned earlier typically results from individuals seeing the issue only from their own perspective and lacking an understanding of the other parties’ viewpoint.
When thinking about succession and transition, we encourage all parties to investigate these perspectives and one key aspect of that is understanding the roles of individuals.
As later generations become involved this can become multi-dimensional with, for example, family members being investors but not working in the business, non-family members managing the business and various other combinations.
These relationships need to be properly managed and the appropriate forums established to deal separately with the family issues and the business issues.
In terms of generational changes, the younger members are often pushing for a greater decision-making role and this pushing will typically cause resistance from the older members.
While an obvious cause of this friction is attitude to risk, with the older members being seen as more cautious, that should hardly be surprising.
The question that the younger generation often fail to ask is simply what the older generation will do when they hand over the reins.
An individual who has spent the last 40-plus years working full time in the business will need to transition to a new role and find a new purpose.
This is absolutely fundamental to a successful handover and we have seen many examples where addressing this one issue removes much of the roadblock.
Often preserving the status quo looks more attractive to the incumbents than any alternatives. After all, the existing role may bring with it status, financial security, excitement and opportunities. How does that compare with 20 years idling the time away at home?
Of course the real key, as noted, is good communication - not one conversation but an open and honest dialogue that is ongoing.
With the family involved, emotions will run high at times so having an external facilitator with an independent perspective can help to ensure fair play and keep the focus on the issues rather than the people.
Want to find out more? Visit the Randall & Payne website here.