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Passing the Torch in a Family Business

Published Date
Author Dilys Chan

What to consider when family members are involved in a business succession plan

This is the first of a three-part series about family businesses. Read more about what to expect from parts 1 and 2 near the end of the article.

Running a thriving business involves juggling many complex responsibilities, including planning for your succession. But how does all of this look different if one of your employees is your cousin, your son, or your daughter?

Operating a family enterprise requires having sensitivity toward delicate family dynamics and the emotions that can arise from them. Those dynamics come to the forefront when older generations are getting ready to retire or move on from the business and must make decisions about how to transfer responsibilities to successors.

Around the world, demographic changes mean that many family businesses are being sold or passed on to the next generation. For many business owners, one of their biggest challenges will be figuring out how to transition the business to the next owner, especially if family are involved in the business.

We know that, for example, in Europe there are almost 700,000 businesses passed on year by year, and roughly 200,000 of them get into deep trouble. Often it’s because there is too big of a gap between the generations.

-Peter Jaskiewicz, academic director of the Family Enterprise Legacy Institute, Telfer School of Management, University of Ottawa (Source: Globe and Mail webcast about family business planning, 2023)

As we have previously written about on Acquired Knowledge, business succession is about making a continuity plan that ensures that your legacy and the future of your business remain in good hands.

Volaris Group speaks frequently with owners of family businesses, and many of those businesses have become part of our network of companies. As a result, we have developed some knowledge about how family businesses can best plan for succession that we share below.

1. How can I determine when is the most appropriate time to bring up the topic of succession with my family?

The earlier a family can begin discussions about succession planning, the better.

Often when the topic of succession goes unaddressed within a family, it may be because the older generation isn’t ready to let go of the business. Raising the issue may be seen as acknowledging the elephant in the room. Rather than face negative consequences, people involved with the business may avoid the topic for many years.

But avoiding a discussion for too long creates uncertainty for everyone involved in the business. By starting succession talks early, your key employees have enough time to prepare for change, whenever that might happen. 
 

2. I’m not ready to retire yet. Isn’t it too early to think about succession planning?

Succession planning isn’t only for business owners who are close to retirement. It's for anyone who wants to ensure continuity in the business.

All business owners must plan for the possibility that an unexpected health emergency, accident, or other disruptive event could bring abrupt change to the business. In such a scenario, everyone involved in the business would need to react quickly. An event of this nature could pose a risk to the long-term future of the business, especially because people are more prone to making hasty decisions when emotions run high.

Having a plan helps ensure that the responsibilities of the business are passed on to the people who can most capably keep the business in good shape and even grow it years into the future.

3. What are the various approaches to family business succession?

Succession for owners of family businesses usually means following one of three paths, or a combination of the following:

  • Transitioning the leadership of a business from one generation of the family to another. An example of this can be a child growing into a leadership position and assuming the CEO position at the company.
  • Bringing in talent from outside the family to support or take over management of day-to-day operations. An example of this might be bringing in a CEO or other senior executives with a track record of success leading companies.
  • Preparing the business for a sale if no suitable successor exists within the family. By transferring the wealth generated from the sale of the company to the next generation, the owner can set up children or family members for success outside of the business.
     

4. Should I look within my family for successors to the business?

A major goal of succession is ensuring that the most suitable business leaders are in key decision-making roles. 

When considering possible successors, it’s important to be honest when assessing the abilities of family members and other leaders involved in the business. The most risky or difficult situations for the business happen when family members are chosen for leadership positions, but don’t have adequate skills or qualifications to meet the demands of a top role.

It’s common to find that not everyone in the family will be well-suited to run a business. Many family members may be inclined toward other talents or interests – such as artistic or athletic pursuits, specializing in a profession, or otherwise following a career journey that they create for themselves. Some family members may see it as a burden to keep the operations of a business running smoothly if that’s not where they see themselves in the long term.

Whether coming from inside or outside the family, an ideal successor will find fulfillment in taking on the responsibilities of the business. This leader will also act responsibly when making decisions for the company, its employees, and customers. The successor will also be able to create value for the business.
 

5. What are possible roles for my family members if they want to stay involved in the business, but not in a top leadership role?

Keeping family members involved in the business can have many advantages, such as encouraging the business to commit to a long-term strategy or to stay true to deeply held values. Family members can also help with business continuity by acting as a resource for institutional knowledge.

If family members can add value and would like to be involved in the business, a business owner may wish to consider having family members go into advisory roles or functional leadership roles that match their strengths. This is an especially appropriate option if they are not ready to assume an executive decision-making role.


6. I would like my family members to be involved in the next generation of executive leadership of the business. What’s the best way to pass down these significant responsibilities?

Families that successfully transfer the top responsibilities of the business to the next generation typically invest years of preparation to get the successor ready. They are also successful at communicating across a generation gap.

Most experts advise against business owners heavily pressuring family members into getting involved in the business. However, a business owner can find ways to expose the next generation to the business more gradually. For example, children who learn about the business over time can develop curiosity, interest, and passion in the business while also having space to explore other interests.

As any business owner knows, leading a business is more than about just showing up for a nine-to-five job. Being a business leader means accepting the highest level of responsibility for the company’s successes and failures. It often means going above and beyond the call of duty, going the extra mile for customers, and putting the needs of your employees above your own. A business owner is often the first person to arrive at the office and the last person to leave. Leading a business is also about having a long-term vision and the know-how to lead a team to execute that plan. Finally, a leader must be committed to an ongoing education about what will best serve the business.

Over time, family members who demonstrate competence and an understanding of what it means to be a responsible business owner can be given more access to the business. This can include developing comfort with the various advisors to the business. If trust develops, family members can become involved in day-to-day operations, with responsibilities increasing until they are fully integrated and equipped with all the tools needed to lead the business.
 

7. What are some other resources that can help with issues specific to family businesses?

Family business owners may find it helpful to consult advisors who specialize in issues specific to family businesses. For further reading, we can recommend the following resources:

Volaris Group has developed these resources that can help family businesses:

This is the first of a three-part series about family businesses. Part 2 will focus on opportunities for family businesses to strengthen their governance structures to manage complex family dynamics. Part 3 will profile a family business that has succeeded as part of Volaris Group.