Business mentor: Careful planning key to sound family business succession

Q. We have built up a successful manufacturing business over the years and now I'm starting to think about handing over the reins. We employ about 30 staff including two of our three adult children and obviously I am concerned to make the right decisions. What is your advice?

A. Leith Oliver, a University of Auckland Business School lecturer, and a member of the academic team at The ICEHOUSE Business Accelerator, replies:

A crucial stage in the life of any business occurs when the owner decides it's time to pass the reins over to a new driver.

If the business is a family business it can be even more unsettling. This is an event that requires careful planning if you are going to have any chance of a successful outcome for you and for the business.

The planning tends to centre on three main questions: When is the right time for the business to be handed over? Who is the right successor? What will your role be after the handover?

The question of timing applies very much to the state of the business. If you want to pass the business over to new ownership then build a good business first. It must be in good shape to encourage the best possible candidate to take it into his or her care and to give you the best financial outcome from the transaction.

For example, a transition checklist might include questions about the governance structure that is in place and whether there are non-executive directors or other professional advisers who help to keep the business well managed.

The list will also have questions about the accounts - are they timely and accurate, with a clear separation of personal and business affairs? Is there evidence of a strong profit performance that is sustainable into the future?

Ideally there should also be well-documented quality systems for managing internal operations, external supply and distribution relationships.

The second question is harder to deal with, especially in family businesses. The ideal new owner is someone who will successfully grow the business while caring for the interests of other stakeholders including the staff, suppliers and customers. This could be an external buyer or someone from the management team. But if the plan is to pass ownership to family the question is - are the family members working in the business the right type of candidate for an ownership succession or would the business be better off in new hands?

In regard to family members a good initial move would be to check out their interest in becoming an owner. Often the assumption that siblings are keen to take ownership is not correct and the expectation that they will leads to unfair pressure on them and disappointment for you.

Lastly, how well have you prepared yourself to let go and move on?

Many people look forward to escaping from the daily business world and then find that life on the other side lacks the meaning and purpose they enjoyed previously.

A good plan includes managing the transition for yourself to a new role in life which might include service activities, community affairs or leadership. However, it could also involve providing mentoring or governance services to the new ownership of your company. You could become the chairman or simply a board member and take on an important non-managerial function in the company.

The ICEHOUSE offers a range of Business Growth Programmes including Moving On for succession planning and exit strategies. For more information call 0800 ICEHOUSE (0800 423 468).

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