Succession planning for a family business

Every family wants to create a legacy for their children in the future but often are not taking the critical steps of addressing it in the present.

Statistics show that 80% of family businesses don’t transition to the second generation and of the 20% that do succeed, 80% of those don’t make it to the third generation.

Why is it so hard? The answer is that it is not only a complicated business transaction, but it’s also highly emotional.

I have personally experienced how the lack of proper succession planning in family businesses has brought destruction to the companies and more importantly to families. Sadly, after the damage has been done it is usually too late to fix.

I have found the following critical for successful succession planning for family businesses

1. Give it the attention it deserves as soon as possible (preferably while you’re still alive)
2. Communication is key, and it needs to begin when the founders are still in control.
3. Give heirs the opportunity to weigh in, express their views, concerns or excitement about the business.
4. Get an impartial, non-family third party professional to assist and facilitate the process. Not only will he guide you through the complexity, but he can also look past some of the emotional aspect and give an objective opinion.
5. Formalise the succession plan in a formal document.
6. You need to start training the next generation to take over. This takes time.

Even after implementing the above it still remains very challenging, especially if some heirs are involved in the business and others are not. If you have a non-involved heir, the conversation around what to do with excess cash flow can create unavoidable conflict.

Through proper estate planning this problem can however be addressed. The most effective way usually being to provide money for non-involved heirs by way of life insurance and leaving the business for the heirs that are involved with the business.

If you need guidance through this very important process feel free to contact us at Affluence Group.

Heinrich Coomans | CA(SA) | CFP ?  is a director at Affluence Group and spesialises in Investments, Personal and Business Insurance. For any questions please contact him at  [email protected] or 084 586 9509