What could threaten a succession plan in a family business?
Written on January 2, 2013 – 7:00 am | by Steven Frye
I have been writing about valuation issues related to succession planning for businesses. There are a number of quantitative and qualitative measures including financial stability, current and future prospects for the business, strength of customer and supplier relationships and succession plans for executives and key staff amongst others which effect valuation. It’s no different for a family business. However, there could be issues or threats often found in family businesses which are not very quantifiable but will influence valuation and your ultimate plan to succeed the business
Feuding is often found in family businesses because the family has been unable to separate their business lives from their personal lives. Feuds often result from different personal interests, personal egos and rivalries. Executing any plan, financial or otherwise, is almost impossible in such an environment.
Nepotism is also commonly found in a family business. Family owners who don’t follow best practices for such things as performance, remuneration and promotion for the sake of helping family do so at their peril: It is a recipe for disaster.
The presence of one or both makes it very difficult for non-family employees to succeed. They are more likely to leave because of the limited opportunity for growth and promotion, the continued presence of family conflict or finding themselves always in the middle, so to speak. Talented and/or ambitious people will move on.
I have only touched the surface of what these issues can do to a business and its ultimate succession but be aware that left unresolved it will lead to less than desirable results no matter how good the plan is. Based on my experience, recognizing it in your business is a good first step but I would really recommend that you don’t try to resolve it on your own. There are many excellent associations and services available in or near your community that specialize in these kinds of issues and can better facilitate resolution.
Thanks for reading and Happy New Year.
