“Family businesses and their leaders are the ultimate entrepreneurs. They must continually innovate to grow and pass on a thriving business from one generation to the next. Our survey demonstrates how this entrepreneurial thinking across generations results in business success and strong family ties.” ~Carrie Hall, EY Americas Family Business Leader
For business owners who are looking to transfer their businesses internally to a family member or key manager, creating a succession plan is critically important. Part of achieving a successful business transition is grooming and training the person who will take over the management of the company from the owner. You can learn more about the specifics of succession in our post: Succession—What It Is and What It Isn’t.
As we’ve discussed in the past, only around 30% of family businesses survive past the second generation and the odds only get worse after that – only 3% survive to the fourth generation. So what are the keys to effective succession? The findings from a survey co-developed by Kennesaw State University’s Cox Family Enterprise Center and EY’s Global Family Business Center of Excellence provides some great insight into the secrets of success for the family businesses that have been around for many years and across many generations:
- They recognize the importance of succession.
- They start thinking about succession as early as possible.
- They clearly define who is responsible for handling the succession process.
- They foster effective communication and family cohesion through regular board and family meetings to discuss business issues.
- They develop contingency plans in case of unexpected events.
- They recognize the need for innovation in order to secure the future of the business for the long term.
Probably the most important takeaway from this research is just how seriously these successful, large, family businesses take the process of succession. It’s something that’s built into both the family culture and the business culture. They recognize that succession planning is 100% necessary in order to sustain and grow a multi-generational business. According to EY’s Americas Family Business Leader Carrie Hall, “It’s arguably the most important thing for a business to think about because when done poorly it’s so devastating.”
There is, of course, no one-size-fits-all formula for successful succession. It will vary from company to company and family to family. Depending on your business, it could take three to five years to comfortably organize and implement an effective succession plan and it should be part of an overall ownership transition strategy (it’s not usually best to simply leave your shares to your heirs!) Ultimately, we have to remember that there is a lot of wealth inside the business and we want to make sure that your ownership transition strategy and succession plan is most beneficial for you, your family members, and your business.