Family Business- Picking the right Child to Run The Business

The current economic climate caused by Covid19 worldwide has helped family businesses to begin to think about the future. It might have been instigated from a negative situation but at least the process is starting. History shows that family businesses leave succession planning until there is a crisis such as a death.

The timing is good from an inheritance and tax viewpoint as many family businesses can justify a much lower valuation in the current climate but that should not be the real motivation for deciding on the family structure of the business.

Many family businesses operate on a loose family structure believing in the principle that "everyone mucks in" where needed. This lack of clarity of roles and responsibilities for family members tends to be a weakness rather than a strength, especially for non-family members in the business, suppliers and customers.

It is essential for a family business to discuss and decide what every family member's role is in the business and to produce an organisational chart similar to one produced by a non-family business.

The starting point is to professionally assess the skills of each family member just as if they were outsiders applying for that job.

Different family members will have different backgrounds, different skills and be different characters. Not all may be suited to working in the family business.

Too often the decision is made to give the family member that is most committed to the business the role of heir apparent. This can be fatal for the business. Just because a family member works harder and puts in longer hours does not necessarily mean they are the right ones to lead the business.

Too often, the oldest feels they are the right one to run the business. In some countries still, the oldest male feels more entitled than a sister to run the business.

Picking the right child to run the business is probably the most important decision ever in a family business. Often the decision might even be that none of the children should be running the business.

Other decisions regarding which child does what is also fudged more often than not and children fight for what they like doing rather than what they are good at. Some children, sadly, are not suitable for any role in the family business but still join.

With Covid19 forcing family members to spend more time together, now is the time to have frank conversations about what is right for the business.