Start your family business succession planning today

28/02/19

No one knows what will happen first: the next day or death. Still, many owners of family businesses only start creating a succession plan when they are getting older. If you take the longevity of your family business seriously, you’ll make succession planning into a cyclical process – one that you really can’t start soon enough.

By Niels Govers, advisor for family businesses at PwC, and Professor Inge van Vijfeijken, head of the Tilburg Institute for Family Business.

Three brothers were in their twenties when their father passed away suddenly. From one day to the next, they found themselves responsible for the family business, even though none of them had any management experience. What do our employees and customers expect from us? How do we divide the responsibilities? And in every situation there was this one recurring question: what would father have wanted? Now, thirty years later, they refer to that period as ‘traumatic’. They only developed a business strategy at a later stage, as initially they were too consumed by the tumult of everyday life and their grief for losing their father.

Business owners see succession as a key challenge

This story is only one of many that we have come across. A third of the respondents to our Family Business Survey say that business succession is a key challenge. Many business owners put off dealing with it. And all too often, those who do have ideas about succession fail to discuss them with family members. People further tend to think of business succession as an issue to be addressed when the chairman is old and grey. But what if he dies suddenly or becomes incapacitated? The impact of unforeseen stress events of this kind is the subject of doctoral research at the Tilburg Institute for Family Business.

Precisely in family businesses continuity deserves attention

It is naturally understandable that business succession does not always receive the attention it deserves. Most families have trouble discussing death. And entrepreneurs would rather run their business than plan for unexpected changes in what they hope will be the longer term. Yet, we do see families arranging for their children’s guardianship and drawing up wills to ensure their private wealth passes to their children. But what if these children are shareholders in the family business? It is precisely in family businesses, where family, business and property overlap, that business continuity deserves at least as much attention as private arrangements.

Start on time with planning for succession

Two things will be obvious to any level-headed observer: 1) the head of the family business will stop working someday, and 2) no one knows for sure when that day will come. This is why we believe that those responsible for a family business cannot start planning for succession soon enough, and that they should review their succession plan regularly. The plan describes which candidates will be given opportunities to grow over a five- to fifteen-year period – obviously in consultation with the family members. A business owner in his forties with teenage children should surround himself with competent managers capable of keeping the business going if disaster should strike. Ten years later, however, the situation may be very different. One of the owner’s children may be ready to take over the business.

Also consider setting up a family charter

It is also advisable to draw up a family charter. What are the family’s values, what is the company’s strategic vision and mission? How does the board operate and how are the assets managed? Both a succession plan and a family charter encourage discussion in the family about matters that are often left unsaid. This would have been an enormous help for the three brothers who asked themselves what their father would have wanted.

Contact

Niels Govers

Niels Govers

Partner, Eindhoven, PwC Netherlands

Tel: +31 (0)88 792 54 20

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