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BUSINESS MENTOR: The Challenges in Family Business Succession

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By Armando “BUTZ” Bartolome

We are aware of how difficult it is to start a business. More so, to continue the business and hand it over to the next generation. Rough roads are likely to happen and in any kind of business, everyone should be united in order to strengthen the business. In some businesses, the problems may be because of poor quality of products and services or having incompetent employees. And it is truly a huge problem if these problems are not resolved immediately. However, there are “internal problems”, too that should be focused on primarily because they are the core of the business — the family handling family business.

For some, making family members part of the business can be beneficial. And I do agree at some point because you cannot trust as much compared with other people. You know that any family member will go all the way to help build the business because it is their very own and would want it to succeed and stay afloat for many years to come. But, being human, there are certain times when family members may get into some squabbles about issues in the business, and that instead of focusing on the issues, they attack each other on a personal level.

Working with family members have both an advantage and a disadvantage. However, when you think really hard, it is always possible that people working together, whether they are related or not, will always have a difference in their opinions, different personalities, and different perspectives. Therefore, once again, everyone needs to compromise in order to attain the goal of each and every one.

It makes it harder when family members fail to have a common vision. That is why it is a must to carefully choose who should be on board, otherwise, constant bickering and disagreements would be the most common scenario every board meeting. And it is not a healthy way on how to handle a business. Being constantly in a negative environment does not only affect the family members involved, but as well as the people in the workplace. 

 

Understanding and knowing the direction of the Family Business is vital to succeed
Photo from Butz Bartolome

Family Business Succession Problems 

When it’s time to hand over the baton, the founders of the family business may not feel it easy to just let it go. They may feel that they can still manage the business just like they have always done in the past and may not feel confident that the next generation may be able to sustain the business. 

It is difficult to admit that we are growing old, but responsibilities are there and we cannot be able to do what we used to do even if how strongly we want to. And I guess, letting the next generation do their share in order to sustain the business should be something that every founder of the business should have in mind. 

Here are a few problems that are often encountered:

1. Identifying the successor. Who should be the next one in line? What should be the qualities to look into in order to find the perfect person to fill in the place? Most often, the eldest child of the founder is seen as the successor. However, there are instances wherein some of the children may not be even eager to be part of the family business. Therefore, the best bet to seat on that chair is the one who truly has the heart in the business – the one who has been seen enthusiastic about running the business (not just for the money) and is more than happy to continue what his/her parents have started. Someone who understands how the business operates, the company’s culture and its keys to success and most importantly, the person who has the right mindset and skills needed in sustaining the business.

2. Creating a succession plan. Set realistic and attainable expectations, starting by developing goals that create value for the business. Make a timeline for each step that needs to be taken, taking into consideration the age in which the owner expects to retire. Without this, it would be difficult to know if the plan is being carried out the way it has to be. In doing so, this will make the transition easier.

In creating the plan, it is important to communicate with the family members, management, and advisors. This allows others to give their own opinions which can help improve the succession plan and make it more effective. 

It is to note that once the succession plan is finished, it needs to be updated every few years. Considering that change is inevitable, there is a need to revisit the succession plan and determine if there may be improvements that need to be implemented.

3. Feeling of nostalgia and remorse. A founder would always think about his/her business as his/her baby. And it will be surely difficult to let go. The founder would somehow feel the need to pass on the throne so that the business may continue and prosper, but then again, the founder may feel hesitant to device a succession plan as it would mean setting and end to his/her role in the business.

4. Acquiring a business valuation. It may be difficult to make decisions regarding the succession plan without an understanding of the current value of the business. Changes may occur over time and therefore, having a business valuation is essential for planning purposes. In doing so, it creates a reliable number that can be presented to potential buyers.

Business succession can be done in three ways. One is by gifting it to family members, employees, or other individuals. Similarly, it can be sold to employees, third parties or with a combination of gifting. Lastly, it can be sold to a strategic buyer. But, no matter how the business is to be handed down by its founder, a clear and good succession planning should be made to ensure a smooth transition.

The love of a founder to its business may be immeasurable. But sometimes, there truly is a need to just let someone continue doing what has to be done and just pray that everything will work for the best.

For reactions, please feel free to e-mail business.mentor@butzbartolome.com or visit https://www.butzbartolome.com 

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