When planning for an ownership transition for a family owned business the following elements are important to consider:
1. STRATEGIC PLANNING
Any plan for ownership transition in a family-owned business needs to be created well in advance of any ownership transfer. This strategic plan needs to take into consideration the current roles of any family members, define future roles of family members and take into consideration the family dynamics relating to the business. It needs to consider the expectations of each of the family members regarding the future of the business. Keep in mind that historically less than 30% of family business transitions are successful in the long term. So having a well-constructed and written transition plan will likely be a key determinant of success.
2. OWNERSHIP VERSUS MANAGEMENT
It is important to distinguish between ownership of the business and management of the business after the transition. Initially the ownership and top management of the business may be the same person or same management team. But with a transition it is important to consider that the ownership and the management of the business do not need to be identical. Ownership of the business is driven by estate planning desires of the current owner(s). The management structure of the business should be driven by the skills and knowledge of the management team.
In many family-owned businesses there are multiple businesses with different ownerships. Often there is an operating company and a company that owns the building. Family-owned businesses can have multiple operating companies with common or totally different ownership structures.
3. KNOWLEDGE TRANSFER
It is likely that there is considerable knowledge and experience that is unique to the exiting owner(s). This knowledge needs to be clearly documented and a knowledge transfer plan created that defines how this knowledge will be captured and transferred to the new owner(s) and/or management team.
4. COMPANY CULTURE
Often the culture of a small business is determined by the owner(s) of the business and mirrors their view of how a business should be run. The current culture of the company should be reviewed to determine if this culture is to be continued or modified to match the desires of the new owner(s) and management team. If the culture is to be changed, then a culture change management plan needs to be developed and implemented to make sure all employees are aware of the new direction.
5. INDIVIDUAL FAMILY MEMBER CAPABILITIES
A honest evaluation of the capabilities of each family member that will be involved with the business after the transition needs to be made. A strengths and weaknesses analysis of each of the family members needs to be conducted and an employee development plan created that emphasis their strengths and mitigates their weaknesses.
6. DEFINING ROLE AND RESPONSIBILITIES
It is critical in transitioning ownership and management of a business to clearly define the new roles and responsibilities in the new company. With the exit of the current owner, it may be the right time to bring in outside personnel to supplement the skills of the remaining management team. It may be useful to develop updated job descriptions. If there are changes, these new roles and responsibilities need to be clearly communicated to the employees.
7. MAINTAINING FAMILY HARMONY
If the family already has a Family Office or a Family Council, then there may already exist a process for maintaining communications between the business and the family members. If not, the new ownership, new management structure and new culture (if changing) should be communicated to all appropriate family members. An open dialog should be created to determine if there are members of the family who do not agree with the strategic transition plan and work to either convince them of the value of the plan and/or modify the plan, if possible and appropriate.
8. TRAINING PLANS
It is likely that, with the departure of one or more owners in the business, there will be specific skills and knowledge possessed by these owners that will need to be passed along to the new owners and/or management team. Creating formal training plans may be appropriate. There are a variety of outside training sources that can provide valuable training in these areas.
9. CLEAR COMMUNICATIONS
Throughout the planning and execution of an ownership transition plan, providing clear communications with all stakeholders in the business may be appropriate. These stakeholders include shareholders, the management team, the employees, customers, and suppliers. The content of the communication will vary depending on the type of stakeholder and where the company is on the transition timeline.