• Hiring relatives who aren’t qualified. You wouldn’t hire an engineer who struggles with simple algebra or a sales representative who lacks people skills, would you? Likewise, you shouldn’t hire family members who lack basic qualifications for the jobs you’re filling. Many families require sons and daughters who are recent graduates to work a few years for another company before taking a position in the family business. They reason that working for someone else often provides a healthy dose of reality. The family name carries no weight at another firm, so the graduate learns how to survive on his or her own merits. Such a practice also introduces the graduate to another way of doing business and a different company culture, both of which may benefit the family firm in the long run.

• Paying too much or too little to family members. Some business owners see family members as cheap labor; others compensate relatives well beyond industry standards. Both practices foster resentment. If your son is required to work long hours without adequate compensation, he may decide to quit or feel trapped. The daughter who is too highly paid for her skills and experience will often misunderstand the value of her contribution, while other employees resent the boss’s favoritism. To ensure equal treatment, some firms establish a trainee program in which newly hired employees must complete a probationary period during which they’re paid a lower wage. The goal should be to treat all employees fairly and in accordance with written personnel policies, whether or not they’re family members.

• Failing to hold relatives accountable. If your uncle isn’t meeting the requirements of the job, his supervisor should provide appropriate direction. After that, if his performance doesn’t improve, your uncle’s employment with your firm may need to be terminated. In other words, your relative should be treated like any other employee.

That’s another reason to proceed with caution. As much as possible, you want to ensure that the folks you hire are qualified and a good fit for your business — regardless of their relationship to you.

Succession planning can limit dissemination and downfall, and can be a simple step-by-step process that will ensure future success. It requires a long term approach: investing in mentorship and leadership can reap benefits as many as 20 years down the line.

“To assume there will be a natural successor is a common mistake.”

Start by taking time to consider your ultimate goals (but be aware that goals, and therefore plans, will fluctuate). Build flexibility and evaluation periods into your plan.  To assume there will be a natural successor or that your most desired candidate will want the position is a common mistake, especially in family-run firms.

Factor a wide range of possibilities into your plan. In order for a next of kin to seamlessly take over and generate a flourishing legacy, they must have the willingness, desire, training and know-how required for any entrepreneurial position.

Set milestones in your plan that include evaluation times and periods of consideration. You need to account for changing situations – have one or more of your children now enrolled in college, entered a master’s program or taken a job at a competitor’s firm? 

If your planning leads you to selection of one family member over another, try not to let feelings, favoritism and emotional attachments play a part. Remain as impassive as possible yet respect family bonds. Try to stay true to your original succession ideal, and make the decision based on who has demonstrated their ability to maintain your desired legacy.

Keep family members and important players in the know, sharing your thoughts and ideas along the way.  Minimize the element of surprise or you may create hurt and dissatisfaction.  When a decision has been made, be prompt and clear and do not hesitate to put the orders in motion. Do not leave things in a period of limbo and uncertainty.

A sound suggestion is to set up a board of trusted team members or colleagues to be your counsel. This keeps you informed and also allows your colleagues and team members to feel that they have a part in the decision making process.

And don’t write yourself out of the plan. Keep yourself in mind as your make decisions and craft out how you will remain part of your legacy after the changeover.

Remember to give thought and equal consideration to all options, even if the years eliminate some of them. You never know what financial environment you might find yourself retiring in, and in some cases the selling of the firm may prove the most profitable and stable way to take care of your loved ones.

As experienced professionals we have the expertise to assist with succession planning.  With our assistance, you can increase the chance that all parties will achieve their desired outcomes.

However, children are never clones of a parent and generations also vary one from another so that we can, these days, point to enough commonalties among age cohorts to be able to characterize this person as a baby boomer, that one as a Gen X and another as a Gen Y. Changes in educational opportunity, in affluence, and especially in technology have created a different life style and set of expectations among these generations from that of the business’ founder. This may translate as a lack of any particular commitment to the family business or a desire to take a different career path altogether.

Where there is absolutely no interest in the business demonstrated by the next generation, then, blasphemous as it may sound to the senior generation, selling it to a third party could well be the best decision–for the business and the heirs.

Though commitment towards the family business itself has been identified as a key desirable attribute in potential successors, the situation can be more subtle than simply a committed/uncommitted divide. When you think about it, different people may be committed to a situation for different underlying reasons. In some instances a child may feel committed, but based on feelings of obligation to continue on in the family business–that they ‘ought to’. Another may have made a commitment based on their calculation of the opportunity costs and threatened loss of investments or value of not pursuing a career in the family business-this person will feel that they ‘have to’ pursue such a career. For offspring who experience feelings of self-doubt and uncertainty over their ability to successfully develop a career outside the family business, commitment will be based on a feeling that they ‘need to’ continue in it.

These types of motivation may deliver on ‘commitment’ but not necessarily on another vital contributor to business success: passion. That can only come from a person whose commitment is based on a strong belief in, acceptance of, and an excitement about the business’ goals combined with a desire to contribute to furthering them and confidence in their own ability to do so. The ideal successor ‘wants to’ pursue a career in the family business.

Before attempting to develop a business transition plan based on passing it to the next generation, you must ask yourself this key question: do the proposed successors have the necessary passion for the business that will see them through the long hours and tough times that are part of managing and growing a business?

If you are still some way off the transition point, there may be time to develop a grooming program for candidate successors including working up through the company to establish their knowledge of operations and their credentials with employees and customers, management training and so on. This provides you with the opportunity to evaluate their aptitude, reason for commitment and level of passion. Creating a family council opens up a formal forum for discussing succession planning openly and assessing the real wishes and passion of potential heirs to the business.

If a child doesn’t want a role in the family business, then it’s no use forcing the issue. Better to arrange an alternative transition strategy that recognizes the fact. This may not necessarily involve selling to a third party though. It may be possible to hedge bets by bringing in external managers or transferring ownership to a trust to delay the need for a decision, at least for a period.