family-in-nature

Navigating family business politics

Why handing over the business from one generation to the next needs a plan

Johnathan Dudley, Partner, Business Advisory
01/07/2021
family-in-nature

Author: Johnathan Dudley, Partner, Head of Manufacturing

Having a family business that you can join can seem like a piece of good fortune. But for second, third and future generations it could be a mixed blessing. The BBC1 drama, The Pact is a perfect example of how family dynamics can be challenging.

Failing to plan is planning to fail

A fifth generation son, took over control of the family business from his father. He then passed control to his son.  Unfortunately, he had little interest in the business. At the time his sister, who did work in the business, was overlooked.

This led to all manner of resentment by both parties with accusations of misuse of company cash, lack of respect and general workforce underperformance. Tension can also arise where family members who work and contribute to the business do not get a fair remuneration that reflects their efforts.

Medium to long-term, this lack of succession planning can have disastrous consequences for the business as well as putting an unnecessary strain on family relationships.

Although this reluctance to plan for succession may arises from the inability to make choices between children, a well-run business needs the right people doing the right jobs. There is no reason why ownership shouldn’t come from within the family, but it should come from desire rather than a sense of duty.

Key considerations of successful succession planning

  • Build a long-term vision for the family business that gives purpose as to why you are doing this.
  • Conduct a review of the family’s objectives and if they are aligned to the successful future of the business.
  • Have a realistic discussion to establish if the next generation wish to retain the business or build for a sale.
  • Consider the type of family business structure you want and whether it can last future generations.
  • Understand what family conflicts may be brewing that need to be resolved, if necessary with professional mediation and coaching.
  • Consider using the Three Circle Model of Family, Ownership and Business helping individuals within the business to understand what role(s) they play and how these interact with others.
  • Build a management team and structure around the next generation and provide coaching support to assist them.

Sitting around the table and putting a suitable plan, or Family Charter, in place from both a business and family perspective can be the difference between a business realising its future potential, decline or even failure.  As The Pact highlights, understanding the consequences of any Family Charter is crucial.  Those families who do successfully pass their family business on having put the right measures in place stand a good chance of seeing their family business go from strength to strength.

For more information on the issues addressed in this article or to discuss your circumstances, get in touch with Johnathan Dudley or your usual Crowe contact.

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Johnathan Dudley
Johnathan Dudley
Partner, Business Advisory, Head of Manufacturing
Midlands