Navigating family relationships can be tricky. The same can be said about business relationships. So, combining them in a family business can feel like a huge gamble. And it is, if you are not thinking intentionally about family dynamics.
“Family businesses are unique: they are balancing the preservation of their family entity and relationships along with the relationships and value of their business,” explains Amy Wirtz, a senior consultant with Family Business Consulting Group. “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.”
Amy has always worked with families. With a background in collaborative law, she spent many years helping couples find amenable family solutions as they divorced. She has tapped into this same skill set as an exit planner. Today, as a Certified Exit Planning Advisor® (CEPA), she guides family businesses as they transfer leadership from one member to another, often from one generation to another.
Amy likens the transfer of a family business to a dance, commonly referring to the transition as the “cha-cha of succession” with a choreography that goes forward and backward until it finds the right rhythm.
Below are six best practices for finding that rhythm and helping both current and future leadership grow the family business, while preserving the family unit.
Defining roles within the business allows each family member to lean into their strengths while staying out of each other’s way. Clearly defining roles also helps next-gen owners determine gaps in leadership capabilities, so they can develop the skills needed before the current owner exits.
To keep family leadership working together toward the same goal of growing the value of the business, communication must be one of the core values. Good communication involves both talking and listening.
If you are running a business that you intend to pass on to your family when it is time to exit, you must have intentional conversations about that transition well before the actual transition period. That is because only 20% of businesses survive into the second generation, and 12% survive into the third generation without an outside sale. To avoid becoming one of these statistics requires forethought and planning. Take the time to ask the important questions of the next-gen leadership:
Every family business manages its family system, ownership system, and leadership system. The goal is to align the vision of ownership and build value inside all three of those systems. This requires strategic parallel planning for the family system and the business systems to ensure current ownership and next-gen ownership are moving in the same direction.
No matter where you are in the process, it is good to regularly check in and evaluate how things are going. Each year, Christopher and Scott Snider, Exit Planning Institute®’s father-and-son ownership team, use what is called the Family Business Blueprint—a set of 12 yes or no questions that assess their alignment. This results in a robust discussion about how to drive value in the business and keep the family and business relationships prioritized.
Bringing in an outside advisor early can help ensure an inter-generational succession plan that puts guardrails in place and allows the next generation to learn and prepare before taking the helm. Plus, you will get clear-headed advice that is not predicated on existing family dynamics.
Being part of a family business is not easy. Yet, it is rewarding. With these best practices in place, leadership can set the path for driving value, transferring ownership, and navigating a business across the generations.