Why Multi-Generational Family Businesses Struggle with Succession Planning

Succession planning in multi-generational family businesses often gets swept under the rug. Despite its critical importance, many family-run businesses find themselves unprepared for the future. So, what makes this process so difficult? 

 In this article, we look at the key reasons why succession planning can become a stumbling block for family businesses and the role that an independent advisor can play in facilitating a succession plan. 

 Emotional Ties Run Deep 

In family businesses, the business itself is often more than just a source of income—it’s a legacy. The emotional attachment that family members have to the business can make succession planning a daunting task. The thought of stepping aside can feel like letting go of a cherished part of the family’s identity, leading to procrastination or avoidance. 

 The intricacies of family relationships can make decision-making a minefield. Issues like favouritism, sibling rivalry, or differing visions for the business can stall the planning process, leaving the business without a clear path forward. 

 Talking about the future can be tricky, especially when it involves sensitive topics like leadership changes and ownership transitions. Reconciling the perspectives of multiple family members can be daunting and discussions can quickly become contentious.  

 Many families shy away from these discussions to avoid potential conflict, but this lack of open communication often results in a vague or non-existent succession plan. 

 Assuming the Next Generation Will Step Up 

For many founders, the business is a lifelong project and letting go can be incredibly difficult. This reluctance to relinquish control often leads to delays in succession planning, preventing a smooth transition to the next generation. 

 With the business landscape constantly evolving, predicting the future is a challenge. This uncertainty can make it hard for current leaders to feel confident about handing over the reins, especially if they’re unsure whether the next generation is ready to navigate the changes ahead. 

 Additionally, it is easy for current leaders to simply assume that the next generation will naturally take over the business when the time comes. However, without a formal plan, there’s a risk that successors won’t be adequately prepared. The result? A business that isn’t ready to face future challenges. 

 Underestimating the Complexity and Overconfidence in Informal Agreements 

Some business owners might not fully grasp the complexities involved in succession planning. Without a deep understanding of the process, it’s easy to put it off or believe it’s something that can be handled informally. Critically, succession planning isn’t just about who will lead the business—it also involves significant financial considerations. From tax implications to asset division, the financial complexities can be overwhelming, particularly if they’re not well understood or planned for. 

 It’s not uncommon for family business owners to rely on informal agreements or understandings about who will take over. However, without a formal, documented plan, these arrangements can quickly unravel, leading to confusion and disputes.  

 These challenges, whether due to emotional ties, communication issues, or financial complexities, can prevent family businesses from developing robust succession plans. Without a well-structured plan, the future of the business—and the family legacy—can be at risk. For family businesses, addressing these challenges head-on is crucial to ensuring a smooth transition and continued success for generations to come. 

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 An independent advisor plays a crucial role in facilitating a succession plan for a family business. Their involvement can provide expertise, objectivity, and a structured approach to what is often a complex and emotionally charged process. Here’s how an independent advisor can contribute: 

 Providing Objective Guidance 

An independent advisor offers a neutral perspective, free from family dynamics and biases. This objectivity allows them to navigate sensitive issues, mediate conflicts, and ensure that decisions are made in the best interest of the business and the family as a whole. 

 Facilitating open communication and managing family dynamics 

Communication is often a significant challenge in family businesses, especially when discussing succession. An independent advisor can facilitate open, honest, and structured conversations among family members. They help ensure that everyone’s voice is heard, and that there is clarity and consensus on the future direction of the business. 

 Family relationships can complicate succession planning. An independent advisor can help manage these dynamics by mediating disputes, addressing concerns, and fostering a collaborative environment. Their presence can help prevent conflicts from derailing the succession process. 

 Aligning Family and Business Goals 

An independent advisor helps align the goals of the family with those of the business. They can facilitate discussions that balance the emotional and financial needs of the family with the operational and strategic needs of the business, ensuring that the succession plan supports both. 

 Bringing Expertise and Experience 

Succession planning often involves intricate legal and financial considerations, such as estate planning, tax implications, and ownership transfer, that may be outside the expertise of the family members. An independent advisor brings specialised knowledge and experience and can work closely with legal and financial professionals to navigate these complexities, ensuring that the plan is both legally sound and financially viable. 

 The advisor plays a key role in creating a comprehensive and formalised succession plan. This includes setting clear timelines, defining roles and responsibilities, and outlining the process for transitioning leadership. Their involvement ensures that the plan is thorough, realistic, and tailored to the specific needs of the business and the family members. 

 Ensuring Continuity and Stability 

The advisor helps the family maintain focus on the long-term stability and continuity of the business. They can assist in establishing governance structures, such as family councils or advisory boards, to support ongoing decision-making and ensure that the business remains resilient during and after the transition. 

 Importantly, succession planning is not a one-time event but an ongoing process. An independent advisor can provide continuous support throughout the implementation of the plan, helping to address challenges, adapt to changes, and ensure that the transition is smooth and successful. 

 By offering expertise, objectivity, and a structured approach, an independent advisor can help family businesses navigate the complexities of succession planning, ensuring a successful transition that preserves both the business and the family legacy. 

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Thorntons is an accounting and advisory practice to mid-size, family-owned businesses in Western Australia. We offer a fully integrated portfolio of financial, tax, succession, and estate planning services and have the experience to guide you through the complexity so that you can enjoy stability, peace of mind and certainty. 

 To discuss your individual business needs and find out if we might be a fit for you, please contact Thorntons at tp@thorntons.biz or call (08) 9421 1722.