Legacy in Family-Owned Businesses
What you leave behind is your legacy—your footprint on the people, community, and world around you. In a business, particularly a family-owned one, this legacy is forged through the strong relationships and strategies developed among the owner, the successor, and the other family members involved in the process.
In fact, Exit Planning Institute® (EPI) is a family business led by CEO Christopher Snider and President Scott Snider. EPI reflects the national trend, as research from strategy and management consulting firm McKinsey & Company shows that family-owned businesses make up over 70% of the global GDP.1 Having a substantial market share means that many businesses will embark on the journey of building generational legacy and wealth, but what could seem like a vague concept may lead to confusion or misalignment.
Achieving the ideal balance of open communication and collaboration fosters genuine generational wealth along with other essential factors that may not be immediately apparent. Here are a few key focus points for crafting significance and legacy in the family business.
Succession Planning
What might be the most obvious yet still significant aspect of creating a legacy is succession planning. Effective succession planning is open, collaborative, and focused on listening. Together, the family business collective moves through a parallel planning system that emphasizes both the family’s and the business’s futures.
A clear and concise succession plan must be agreed upon and recorded. To do this, here are some essential steps for the business owner and involved parties to take:
- Identify the key players on the team
- Put the right people in the right seats. This includes the current key players and whoever will be at the helm when all is said and done.
- Recognize the actual want
- This conversation extends beyond finances. What are each player’s visions? What are their expectations? Be honest and put it on the table. If the potential heir’s vision doesn’t align with the owner’s, where can we reassess to achieve the best outcome for everyone?
- Know that exit is approaching
- If the business owner has been educated and is aware of the succession planning journey, they should already be preparing for their exit. Often, owners who exit the business with a child or other family member as a successor may still want to remain involved in operations. It's important to set expectations in advance to determine whether this is something all parties desire. The 5Ds (Divorce, Disagreement, Disability, Distress, and Death) are critical considerations that proper succession planning and the Value Acceleration Methodology™ can help mitigate.
Once those essential steps are completed, the succession planning team, including the Certified Exit Planning Advisor (CEPA®), can proceed with various methods to transfer the business equity, such as sales, gifts/trusts, or ESOPs.
Managing Family Dynamics
In families, the relationship dynamics play a huge role in how this process may go. 2024 Exit Planner of the Year, Amy Wirtz describes it as the “Cha-Cha of Succession.”
“The uniqueness about family business is they are balancing the preservation of their family entity and relationships along with the relationships and value of their business,” Amy said. “If you go into business with your family, you’re putting money on the line, but you’re also putting your family on the line. That’s what makes it so unique. But it’s also the magic fairy dust that makes them so successful.”
It may be easy for a parent to assume that their child wants to follow in their footsteps, but the reality is that the child may have no interest in owning and running a business. That is why it is crucial to initiate these conversations from the start, rather than operating on assumptions. Every family navigates conflicts and successes differently. There is no one-size-fits-all solution for every family. Having at least a basic understanding of the family’s dynamics is essential in helping them create generational wealth and preserve their legacy.
Preserving Wealth Across Generations
When families approach the succession process with commitment, they significantly increase their chances of successfully transitioning their wealth to future generations. By engaging in open discussions and planning, families can develop a roadmap that addresses the division of assets and considers each family member's values and goals. This approach enhances trust and unity among family members, making it easier to navigate the complexities of transferring wealth.
The role of the CEPA on the succession team is crucial in this context. They act as a pillar of support, helping to soothe the common anxiety that wealth can diminish or disappear by the third or fourth generation. By focusing on a collaborative strategic plan, the CEPA emphasizes the importance of wealth management and preservation, providing peace of mind that the family’s assets will be safeguarded for future generations. This strategy reassures current members and instills confidence in the next generation, preparing them to carry on the family legacy with a holistic understanding of the resources at their disposal.
Reference
- McKinsey & Company. "All in the Family Business." 2024. https://www.mckinsey.com/featured-insights/sustainable-inclusive-growth/charts/all-in-the-family-business.
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