Succession planning for family businesses: where to start

“I’ll deal with it when the time comes.” It’s the most common thing I hear from owners about succession, and it isn’t a plan.

Handing on a family business, whether to the next generation, the management team or an outside buyer, takes years to do well. The time to start is long before you need to.

It’s about dependency, not age

Most people think succession becomes urgent as the owner gets older. For me, it’s less about age and more about how dependent the business is on the owner.

If every decision, customer relationship and problem still comes back to you, succession is already an issue, whatever your age. You need time to build a business that can operate successfully without you, and that time doesn’t appear on its own.

What it looks like in practice

One family business I’ve seen is in the middle of a handover. The son is taking over, but the father hasn’t really let go. He keeps challenging the direction and telling people what to do, so the team still goes to him rather than to his son.

The father probably doesn’t realise it, but he’s undermining his son’s authority and setting him up to fail. Every time the team sees the decision overturned, they learn that the real boss hasn’t changed.

For the handover to work, three things need to change:

• The father gives his son the space to lead.
• He supports him in front of the team.
• Any disagreements between them are discussed privately.

It’s still in progress, so I can’t tell you how it ends. But the pattern is a common one, and it’s far easier to agree those rules before the handover than to repair the damage afterwards.

Family, team or sale

Start with yourself, not the business. What do you want from your next stage of life? What do you need financially? And what does the business need to succeed after you? Then look honestly at the options.

A family handover shouldn’t be the default simply because there are children involved. The test for a family successor is straightforward:

Do they actually want it? Can they lead it? And would you appoint them if they weren’t family?

They don’t need to be ready today. But there needs to be a realistic plan to get them there. If the honest answer to any of those questions is no, a management buyout or a sale to an outside buyer may be the better route for everyone.

The mistakes owners make

The first is assuming that because someone has worked in the business for years, they’re ready to run it. Being good at the work and being responsible for the whole business are very different things. It’s the same gap I see with managers who have the title but not the role, which I’ve written about in why your managers aren’t managing.

The second is handing over the title while keeping all the decisions. You can’t hold someone accountable for running the business if you won’t give them the authority to do it.

The difficult conversations

Family businesses carry things other businesses don’t. These conversations need to happen before a decision becomes an argument.

Start by being clear about three separate things:

• Who owns the business.
• Who works in it.
• Who has the authority to make decisions.

Those are different things, even when the same people are involved. Mixing them up is where a lot of family friction starts.

Fairness doesn’t always mean giving everyone the same role, salary or responsibility. Having someone independent in the room can help the family discuss what’s right for the business without every disagreement becoming personal.

And the founder needs a clear role after the handover, with agreed boundaries. Without one, it’s very easy to drift back into running things, which is exactly what happened in the example above.

Where to start

Ideally, I’d want an owner thinking about this at least five years ahead, and longer if the next generation needs developing. That doesn’t mean fixing an exit date now. It means giving yourself options.

The first practical step is to write down what you want your future involvement to look like. Then ask yourself:

If I stepped away for three months, what would stop working?

The answer gives you a starting point for building the team, the responsibilities and the systems the business needs. If you’d like an independent view of how far the business depends on you today, that’s what the Business Value Review is for.

Family isn’t automatically the best outcome

This is the view some advisers might disagree with. Keeping a business in the family isn’t automatically the best outcome. Sometimes a sale is better for the business, the employees and the family than putting an unwilling or unsuitable successor in charge.

There’s a timing point too. If more owners are looking to retire at the same time, they can’t all assume a buyer will appear just when they’re ready.

So my view is that succession planning should start with making the business less dependent on its owner. That improves your options whichever way you go: handing it to family, selling to the management team or finding an outside buyer. It’s also what a buyer will look at first, as I set out in what buyers look for when they value an SME.