Believing that it’s easy to plan for succession in a family-owned business could not be further from the truth. Questions that often come up include: Who will lead the company into the future? And who is making the decisions that will impact the company and its stakeholders? These are challenges any way you slice them, even before considering the business itself and whether or not its model is sustainable.
To tackle these challenges, having a plan is essential, as is evaluating the business on a variety of levels. For example, a company might be highly successful in the strict sense of making money while being completely dysfunctional in other ways, resulting in lawsuits, high professional fees and an eventual liquidation. That’s not the legacy any owner wants.
I have come across some very good family-run businesses that are very profitable and have strong synergies within the family, including several food and beverage companies whose leadership has transitioned to the third generation. Succession doesn’t happen without struggles, but building a culture of respect and removing greed from the equation goes a long way.
There is no magic formula that works in every situation, and a range of scenarios have proved successful for different companies. One consideration is developing a culture of teamwork within the family as younger members grow up and show interest in the company. Create a plan and establish buy-in on questions such as when an owner’s children or grandchildren should enter the business. Should they join right out of college, or should they work elsewhere and then bring those experiences to the company on a predetermined timeline? There’s no right answer, but establishing a precedent and gaining consensus among family members goes a long way.
Additionally, as with a non-family business, roles must be defined. We worked with a client recently on how to communicate to employees, as well as to the outside world, about the transition as the founder stepped down and one son became CEO and the other COO. The two sons held distinct roles, but it was important to convey who was responsible for what. It may seem like an easy task, but for a business with hundreds of employees spread out across the United States and several other countries, it becomes both challenging and essential to communicate the change clearly and articulate the role of the new leaders.
Successful companies allow the next generation of a family’s leaders to make their mark. For example, a younger set of leaders may see the opportunity to leverage the trusted brand of a company that has traditionally operated as a manufacturer or distributor and use it to expand into restaurants and retail operations. While the approach may seem unconventional, it’s about making use of the way the new leaders see the world differently from their predecessors.
Continuing the success of a company takes hard work, without a doubt. But honesty, transparency and respect in the way a leader operates the business, treats family and creates a plan for succession are the keys for long-term success of family-owned businesses.
Howard Dorman is a partner and National Food and Beverage Practice leader at Mazars USA LLP. Dorman delivers accounting, tax and consulting services to manufacturing and distribution companies with an emphasis in the food and beverage industry. Dorman’s more than 30 years of experience include strategic planning for privately held and family-owned businesses and service firms. He can be reached at 732.205.2040 or Howard.Dorman@MazarsUSA.com.