Succession planning for small business
Preamble
It is not unusual for a family business to have grown through the considerable efforts of a husband and wife and, later, to introduce one or more of their children into the business.
Once children join a family business, the dynamics change dramatically but often this is not recognised and steps are not taken to organise the business to cater for the different needs.
The parents who established the business probably need either the capital from the sale of the business or continuing income to support them during retirement. The incoming child or children are looking at 30 – 40 years of income to maintain a desired lifestyle and then retirement. What are the roles of the family members? Are they written down in job descriptions like they might be in other non-family run businesses? Is the company structure appropriate? Is there an up to date shareholders agreement in place? How and when should the child or children become shareholders?
What are the fundamental aims of the participants in the conduct of the business? Is the business there to provide income with the families interests being paramount or is the family focused on ensuring the success of the business above everything else with the view that this will pass on the benefits and provide a balanced life.
Family Council
Once a child or children is introduced into a business it is probably not a bad idea to consider setting up an informal Family Council to meet regularly and talk about issues that impact the family. Clearly a Directors meeting is designed to deal with the day to day operational issues and strategic planning for the business but a Family Council can concern itself more with the family's needs and in so doing can create a family plan or a series of family plans and a mission statement separate from the business plan and mission statement.
The Family Council should also look at primary objectives such as the need to grow the business, increase profits or maintain healthy family relationships.
In relation to the day to day running of the business and with an eye to perhaps selling the business in the future it is wise to introduce appropriate infrastructure, such as business plans, job descriptions, employee handbooks, manager handbooks, operational manuals and the documentation of computer systems.
You should also consider organising an annual meeting between accountants, lawyers, bankers and any other business advisers to ensure that all professional advisers know what the business is up to and, as a result can provide better advice.
Even if you do not plan to sell the business in the immediate future it is wise to run the business on the basis that it is sale ready. This is where professional structures like job descriptions and KPI's make the valuation process easier and increase the likelihood of realising full value. It is important that family members involved in the business undergo the same process as non-family employees. They may not feel the need for job descriptions and performance reviews but it is actually beneficial for the business in the long run.
GEOFFREY ROBERSON
Principal
SUCCESSION PLANNING
