Benchmark International

In the latest in our blog series on the impact of family ownership on succession planning for businesses, we look at how complex emotions can result in difficult decision making for businesses owners in terms of exit prospects.

The ownership structure of a business will have a significant impact on its operations, from publically-traded companies to family-owned businesses. In the case of those companies either partially or fully-owned by a family, the business will reflect the character of the key decision makers. Due to the inherent emotional significance attached, the legacy value for owners of family businesses can, and perhaps should, also exceed direct financial considerations, as many form an important part of a family’s history.

Such factors come to the fore when considerations surface regarding an exit or a handover to the next generation. The circumstances surrounding this may be sensitive and, by analysing the motivations behind the decisions of key players in the business, it is possible to make better-informed decisions about the right approach when it comes to the future of the business.

Succession Planning: 2nd Generation Facing the Facts

Figures quoted in a recent article in the Financial Times show the ambiguities around family ownership, particularly for those family members who work in a business but aren’t currently in the boardroom.

The article points to research from McKinsey, which states that only around a third of family members working in a business feel confident about taking on the responsibility of running the business. This is despite two thirds of these employees wanting to take that next step. Obviously, good succession planning will take into account these factors as the continued success of the business will rely on the quality of its future leaders.

That said, the importance of the quality of future leaders/successors over the influence of relationship circumstance is argued within Mrs Moneypenny’s recent FT article, which debates that the best successors are those that are “passionate about the industry and [have] a strong business brain. Those are not clichés; they are what I will be seeking in any succession plan for myself, family or not.”

This further highlights the complexities surrounding whether the family ‘X factor’ passion can be encompassed by an unrelated employee, or whether the best suited successor may in fact be from outside the family due to that person’s inherent ability to take the business forward.

Another important factor is the way that those family members act when working in the business.

The same survey points to only a third of family workers displaying an obvious link to the ownership when around their co-workers, despite high numbers of them directly working within the business. The change in status and role that comes with transition to leadership is often a challenge that must be addressed prior to or during the succession process. Of course the individuals involved will always have their own motivations, meaning each business has a unique set of circumstances to evaluate.

Future Goals: Succession to Success

Clearly, the value of a family business passing from one generation to another can exceed the financial implications for many, which can make questions about how to transition, and to who, extremely difficult to answer. However, only a well-planned succession built on a sound strategy will allow that succession to translate into success. In practice, the idea may not reflect the reality when a business plans its ownership future as unforeseen circumstances can change plans significantly or, equally, force plans to be made.

Importantly, the ‘family factor’ is only one component of any business and its unique fingerprint. Should a business owner find themselves in this transitional period and seeking an exit (whether fully or partially) to handover the business to the next generation, then it is best to find a partner to facilitate an appropriate exit strategy. Such a strategy should work for you and your family’s every need, whilst simultaneously ensuring the legacy of the business.

To find out more about exit and growth strategies, visit http://www.benchmarkcorporate.com.