Succession planning crucial in family firm
Succession planning is essential if a family business is to survive more than one generation and retain its value.
This checklist will ensure this doesn’t happen and will guarantee maximum family in-fighting.
Never plan ahead. Act as if you are invincible.
Get family members to work for the lowest possible money. Keep them in line by implying they’ll get a bigger slice of the action than other family members later on.
Don’t tell family members what is happening in the business. If you have to communicate, give different family members only snippets of incomplete information.
Promote family members working in the business to lofty positions without giving them any formal training or on-the-job coaching. That way they will keep making mistakes and ensure you can never be replaced.
Do not have an up-to-date will. Provide personal guarantees for all company borrowings. Don’t bother about a shareholders’ agreement or a memorandum of wishes for the trustees about how things should be handled if you are not able to do your job.
Yes, this is tongue-incheek advice. But these things happen more often than we would like to accept. Given the high number of family-owned businesses in New Zealand and the need for these to continue for future generations, the tricky subject of succession planning must be addressed.
It is not about what happens if you die.
The driver should be planning for your retirement or for what happens if you wake up one morning and decide to do something different.
Who is being trained to step in for you? If family members are uninterested or unsuitable, appoint an outsider.
If conflict is likely within the family, appoint a third party with the right experience to be a trustee, director or independent adviser to the company.
The bottom line is that the principles of good management and good business governance apply to family-owned businesses.
Though it seems like common sense, those running family businesses are often working extremely hard and do not take enough holidays, let alone spend time on big-picture issues like succession planning. Pick your likely successor, then ask yourself if this person would have been your choice had they not been a relative. Does he or she have the right skills for where the business is at? What training might enhance these skills?
Allocate time with this person where you work on the business rather than in the business.
Ensure you pay a market salary and that you are not ripping them off on the promise of a future share of the cake.
Prepare for the worst and ensure the business is protected in the case of a relationship breakdown.
Our track record in New Zealand for having life-long relationships is not great. If you suddenly have to refinance to pay out half the business to your previous partner, the value will soon be destroyed.