Part 7 of the "Process-Oriented Approach to Family Business Succession Planning" Blog Series
At first blush, a business owner may believe that procrastinating or failing to craft and adopt a viable succession plan will have an impact upon only him or herself. I would contend, however, that any thriving business affects a multitude of individuals, further raising the stakes and underscoring the challenge to do whatever it takes to plan for an orderly transition.
Some stakeholders are obvious and include those family members who are active in the operations of the business and key employees. Others, however, may not be as evident, but could most certainly feel the impact of a business transition, particularly if it fails. So, today, I will spend some time identifying some of the less obvious stakeholders, as well as some key observations for engineering success while considering their often diverse needs.
First, let’s consider the spouse and children of the owner. While they may have rarely been physically present in the workplace, there is a high likelihood that the workplace was exceedingly present in their lives. The business most certainly placed constraints on the time the owner was able to spend with family members over the years. And if certain immediate family members were involved in the business while others were not, there were probably more than a few instances where perceived inequities caused family tensions. More often than not, however, the conflicts that arise in this context are because the lines between family and business have become blurred, or in some cases obliterated. A successful business must be staffed by capable individuals. Unfortunately, shared bloodlines do not necessarily translate into business capability. And while parents may feel an obligation to provide financial support to their children, you will be hard-pressed to find anything in the available literature that places a similar obligation on a business.
Second, let’s consider employees. Key employees must be confident and engaged even when they are not offered the prospect of ownership. And all employees have an important financial interest to the extent they are dependent upon the business for their livelihood. Employees may quickly become disenfranchised when family conflict or dysfunction begins to have an impact upon the prudent operation of the business.
Finally, let’s consider vendors, suppliers and customers that provide or consume goods and services and that benefit directly from the success of the business. And let’s not forget the community-at-large that enjoys indirect benefits resulting from charitable gifts and taxes paid by the business.
So how does one go about drawing the lines between family and business to satisfy these seemingly divergent stakeholders? I believe that an important fundamental best practice employed by successful businesses and their families relies upon clear goals established and communicated through both a written Family Mission Statement as well as a written Business Mission Statement. These documents define a vision for both the family and the business, and it is at this high level that the distinction between the two may be drawn. And while many owners down-play the importance of these documents, I believe that they are well worth the effort because they force discussion and communication surrounding many of the issues that instigate conflicts in the family business context. (For more on this topic specifically, see my post, "Balancing Family Relations with Family Business")
Engaging the appropriate parties in their respective roles is the starting point for minimizing conflict and focusing the owner’s effort on a successful transition. Clear guidelines may be an important first step in a business owner’s quest to satisfy as many of the important objectives related to a diverse group of stakeholders who have come to rely upon the success of the business, and who may be instrumental in the continued viability of the business well into the future.
Read other posts in our "Process-Oriented Approach to Family Business Succession Planning" Blog Series:
Part 1: Effective Business Succession Planning: A Call to Action
Part 2: 18 Must Answer Questions for Family Owned Business
Part 3: Balancing Family Relations with Family Business
Part 4: Identifying the Business Owner's Goals - Cash Flow and Financial Planning
Part 5: Identifying the Business Owner's Goals - Taxes
Part 6: Business Succession Planning: Keeping Your Buy-Sell Agreement Relevant
Part 8: Don't Let the Failure to Communicate be Your Business Succession Plan's Downfall