Simple handover plan can remove the angst and smooth the transition of a family business to a new generation.
Time is running out for thousands of ageing owners of small- to medium-sized enterprises (SMEs) who intend to retire in the next few years.
The handing over of their businesses, to their children or others, will be the biggest test of management behaviour to face New Zealand since World War II. The efficacy with which this transition takes place will have a significant impact on our economy for some time to come.
The global recession and credit crunch has limited the number of businesses that will be sold to entrepreneurs, leaving owners to contemplate their family members as future stakeholders in their business legacy. But handing over to a child can be full of fishhooks, frustration and tears, sometimes leading to lifelong rifts.
There seem to be two ways of going about this transition - either the formalised, business-like way of doing things or the "family way". Without doubt, the "family way" is the more common approach. The reason for this is simple: many older owners simply do not have the traditional management skills or discipline to ensure a smooth handover of skills and operational procedures to make it a success. In fact, it is usually dictated by their daily whims, unclear timeframes and priorities, with little or no consideration of the needs or skills of the successors.
Rather than using hard, objective tests to determine whether a son or daughter is ready to take over, parents tend to use a much more subjective approach. Sadly, very capable children are stopped from taking over because the parent's perception of their ability harks back to their childhood or their early days in the business.
Too many owners have a very high opinion of their own skills and do not think anyone, including their successor, could do it as well - even if that successor has been working in the business for years. This is often very far from the truth. Owners often will not let their successors have enough responsibility or information to succeed, almost setting them up to fail.
This goes to the heart of the current owner's feeling of worth. Information is power and after 30 years it can be hard to give it up. Their persona is so closely tied to being in control of their business.
They also know they are not managing as well as they should and there is a degree of embarrassment that someone, especially a child, should expose their weaknesses.
Last week the son of a car dealership owner told me that in 20 years of working with his father they had had only one argument. He commended his father on letting him make his own mistakes, even though he was sure his father knew there would be consequences for the business.
Their transition process has been successful, with the father now playing the role of a hands-off mentor. But stories like this are the exception rather than the rule.
At the other end of the spectrum I have seen some fathers take a Charlton Heston attitude towards handing things over: "I'll give you my business when you take it from my cold, dead hands ..."
Naturally, you have to feel for children waiting in the wings and having to deal with this type of attitude.
My advice to owners who want to divest to family is to be brutally honest with themselves and their children about what they want and the timeframes for transition. If your goals change, then sit down and talk about it and how the new goals affect everyone.
Getting external help with the process can be beneficial, but at the end of the day it is your desire and ability to make the change that will be the key factor - not a consultant's well thought-out plan.
When dealing with families in this situation, I take a very draconian approach to the whole process. I tend to get everyone in a room and ask what would happen if the current owner (the parent) was hit by a bus. The answer is that the son or daughter would have to step in immediately, ready or not. Everyone agrees this would not be the best result and that a more structured plan should be devised.
The result is a very simple handover plan, such as:
* Agreeing on a timetable for a change in leadership to another family member.
* Listing all the tasks that the owner currently performs that will have to be done by others.
* A plan to gradually transfer the current owner's tasks to others, with the owner providing training as required.
* A plan to ensure that the successor has all the skills to do the job the parent was performing (marketing, sales, governance, finance etc).
* An ongoing review of the steps above to ensure that the changeover occurs according to the timetable.
Like most things, once a plan is devised a lot of angst is taken out of the situation, and replaced with a sense of certainty.
There is an old maxim that "the only person silly enough to buy into a family business is a member of the family".
This may be true. Yet theoretically, children who work in the business, and have worked there for many years, should be the best handover option.
Parents should see every day as a trial handover, so that in the event that death, sickness or incapacitation comes knocking, the children will not have to wrest control from those cold, dead hands. Instead, the business will be in good hands and the legacy can continue.
Craig McIvor is the managing director of Corporate Management Advice which assists businesses with growth strategies.
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