Global studies have shown that the vast majority of businesses worldwide are either wholly or partly family-run. However, research suggests that as many as three-quarters of all these businesses fail to make it beyond the first generation. Some more statistics for family businesses can be seen in the embedded infographic.
Having a detailed succession plan in place is one way business owners can increase their chances of their company surviving beyond the first generation. Despite this, a report issued by KPMG in 2021 suggests that approximately 54% of all family businesses do not have a succession plan.
Dr Edgar Paltzer counts succession planning among his preferred areas of practice in his role as an experienced attorney-at-law, helping business owners of all shapes and sizes to create succession plans for their family business.
A definition of succession planning and what it entails can be found in the PDF attachment to this post.
Getting Started
One of the key aspects of a succession plan is cooperation. However, as many members of the family may be currently involved in the business, it is imperative to begin having open conversations with each and every one of them at the earliest possible stage.
A succession plan involves far more work than simply naming a successor. The earlier this work can begin, the more chance there is of the business transitioning well once the time comes for retirement. The plan must not only include a detailed outline of roles and responsibilities for all possible successors and future employees of the business but also a strategy for training the overall successor.
The plan should also address retirement plans for the founder or current owner, including whether funding for this will be separate from the business or whether the company will still be expected to provide financial support.
Seeking Independent Advice
One thing that differentiates a family business from any other type of business is that there is likely to be more emotion behind decision-making. Family ties can cloud best judgement when it comes to determining who is the best person to take over. Seeking independent advice can therefore be an essential element of creating a succession plan. Professional legal advice can help take the emotion out of the decision and ensure the successor is chosen based on merit. This advisor can also assist on matters such as tax implications.
The short video attachment offers some insight into choosing the right successor.