A few weeks have passed since the beginning of the New Year, and we suggest that it is time to check-in on your family business’ New Year’s resolutions. One resolution that should be on every family business’ list in 2019 is succession planning. According to the Conway Center for Family Business, each year around 70 percent of family businesses fail to successfully navigate the rough waters of succession because owners are putting off having important conversations about succession until it is too late. Family business owners avoid having these conversations because they require extensive time, patience, and diligence from owners, families, and employees. If in previous years your family business was guilty of coming up with excuses to avoid talking about succession, make this year different. Make 2019 the year of positive planning, suggests Rochelle Clarke in her January 2019 Forbes article, “A New Year, Another Chance to Secure the Future of Your Family Business.”
This process is different for every family business and there is no perfect playbook. That said, there are a few steps to consider this new year to help the process along.
Step one. Your family business should consider developing a Business Continuity Plan. Think of this as a “back-up” plan to your actual succession plan. Without deciding every detail right away, your family business can come up with a general outline of how your business will continue in the event important employees are unable to continue working.
Step two. After creating an initial Business Continuity Plan, your family business owner should begin the conversations about the future with your ideal successor. Ask them whether they are willing to take over the business, why they are passionate about the business, and what future plans they have for the business. Remember that this individual may have a very different vision of the future or his or her role, so it is important to start at the very beginning and not make any assumptions. As you have these conversations, you should consider who else should be made aware of the progress and who else should be participating in this process. There can easily be hurt feelings of those not included.
Step three. Once the conversations have progressed to a point where there is general alignment on the path forward, your family business owner and ideal successor should consider putting the plan down in writing. This adds a level of formality to both parties’ commitment. (Never assume that just because your ideal successor actively participated in discussions about succession, they have decided to fully embrace transitioning into an ownership role.) Formality also forces the parties to think through certain details and considerations that may not have been clear through more casual conversations.
By simply following a few simple steps your family business is on track to make 2019 the year of positive planning.
Drew Steen is a business transactions attorney at Davis Wright Tremaine LLP. He represents both buy-side and sell-side clients in mergers and acquisitions, venture capital investments, joint ventures, equity co-investments and restructurings. He also serves as regular corporate counsel for several closely held and family-owned companies. Drew can be reached via email at firstname.lastname@example.org or directly at 206.757.8081.