The Roadmap to Transition: Creating a Sustainable Succession Plan

Succession planning in a family business is a complex dance, a delicate balancing act between familial bonds and commercial imperatives. It’s a journey often fraught with emotion, yet absolutely crucial for the long-term health and survival of the enterprise. The core question every business owner must face is: “Do I want my business to continue indefinitely?” An affirmative answer immediately mandates a succession plan, a roadmap for the inevitable transfer of leadership and assets.

One of the most critical steps is to separate the transition of management and decision making from transition of asset (and debt) ownership.  A common fear is that any discussion around succession means signing over the whole operation and retiring.  This doesn’t have to be the case and is rarely the best option.  Handing over the reins of leadership doesn’t necessarily mean immediate ownership transfer. This staged approach allows for a smoother, less disruptive transition whilst setting up the incoming generation with the skills needed.

It is also powerful to clearly delineate between family expectations and business expectations. These two spheres, while intertwined, require distinct approaches. Mixing them inevitably leads to conflict and resentment.

The graphic provided highlights the journey of a leader in a family business, moving from worker to manager, and finally to leader. However, the cycle doesn’t end there.

A truly sustainable business requires the existing leader to eventually step back, possibly even returning to a worker role, to allow the younger generation to take the helm. This cyclical nature of leadership ensures the business’s longevity.

Unfortunately, succession planning is often derailed by common pitfalls, primarily rooted in family dynamics. These include:

• Sense of Entitlement: The belief that family members are automatically entitled to a share of the business, regardless of their contribution. This fosters resentment and undermines the principle of meritocracy. Combatting this requires instilling a sense of self-responsibility for wealth creation.
• Emotional Blackmail: Using emotional manipulation to influence decisions, often rooted in past sacrifices or perceived injustices. This creates a toxic environment where logic and reason are overshadowed by emotional pressure.
• Unsubstantiated Promises: Making promises that are impossible to fulfill due to resource constraints or conflicting interests. This erodes trust and breeds disillusionment.
• Hope: Relying on a future improvement in financial circumstances to address succession issues. Procrastination only exacerbates the problem.
• Fear: The anxiety associated with retirement, loss of control, or the fear of the business being sold. This fear often leads to avoidance and inaction.
• Family Overriding Business: Allowing family dynamics to dictate business decisions, compromising efficiency and profitability. This requires a firm commitment to separating personal relationships from professional roles.
• No Forward Planning: Failing to acknowledge the inevitability of change, whether due to age, health, or family circumstances. Proactive planning is essential to mitigate potential disruptions.
• Sweat Equity: Exploiting family members by underpaying them, creating a sense of entitlement and resentment. Fair compensation is crucial for maintaining a healthy working relationship.

To navigate these challenges, it’s essential to foster open communication, establish clear roles and responsibilities, and seek professional guidance. Addressing the perception of entitlement by promoting self-responsibility, and mitigating emotional blackmail by sticking to facts and business needs are important. The most important action is to start planning now.

Succession planning should be viewed as an opportunity, not a burden. With careful planning and the right support, it can be a positive and rewarding experience. Avoidance, however, will almost certainly lead to a turbulent and stressful transition.

RCS offer specialised advisors to assist families in navigating this complex process. Their expertise can help to facilitate open dialogue, develop comprehensive succession plans, and ensure a smooth transfer of leadership and assets. If you are a business owner, it is time to face the facts, and start the process. 

Start by calling our office on 1800 356 004 and ask to speak with our Chief of Delivery David McLean