How to prepare your business for the next generation
You’ve spent your whole life growing your company. You’ve put blood, sweat, and tears into making it a success for your family, and building a legacy that will outlive you. The last thing you want is for the next generation to come in and destroy what you so painstakingly assembled. Unfortunately, the odds are against you: nearly 90% of family businesses don’t make it to the third generation, and they often harm family relationships along the way.
YPO member George Isaac is the family business whisperer. He was born into a family business, and after graduating with an undergraduate degree and an MBA from the University of Michigan, consulted for Deloitte, eventually becoming a partner. He then returned home to run his third-generation family business, which he grew 6-fold in just 8 years. Since then, his company, GAI Capital, has helped other family businesses handle the unique challenges of running such an enterprise. He is also a Lecturer and Advisory Board Chair at USC’s Marshall School of Business Family Business Program. Isaac is also publishing a new booked called Your Business, Your Family, Your Legacy: Building a Multigenerational Family Business That Lasts, which guides family company leaders on what to do now to put the company and family in a position to succeed for the long term. The book has already achieved several weeks as an Amazon #1 New Release in multiple categories.
Family Transition Planning
1. Family Planning and Communications
Isaac admits that what he proposes for family businesses is not necessarily easy. “The starting point is the hardest – addressing the often emotionally charged and conflict-triggering family issues associated with family business succession plans,” he says. But it’s critical. He explains, “If families get this wrong, the transition begins with cracks that will grow until they eventually undermine, and more often destroy, a multigenerational family business.” Communication is a key component of any family relationship, and the same is true of any family business relationship. Without the foundation of open, honest, ongoing communication, it becomes much harder to accomplish anything else.
2. Ownership Planning and Alignment
3. Retirement and Estate Planning
Another critical decision is what former employee family members are given in retirement. Isaac advises, “Individual retirement and estate plans need to be defined to address liquidity needs for estate taxes and lifestyle support of the elder generation.” This can be a difficult topic to address, but establishing guidelines now can help prevent problems in the future, for the business and for family relationships. Isaac warns that when things aren’t clearly defined, “unmet liquidity needs may become a capital constraint on the business.” You can’t afford past decisions to bankrupt your future.
4. Governance Planning
Business Transition Planning
5. Business Strategic Planning
Once the family issues are agreed upon, the next step is to be certain the goals and plans among the next generation of ownership are aligned. Isaac encourages the family businesses he advises to be specific and put plans in writing. “The foundation for the business transition plan is an updated strategic business plan aligned to support the next generation’s goals for the business,” he says. And it doesn’t have to be overly complicated. Isaac advises, “A typical SWOT analysis is a good starting point – an objective analysis of the business’s strengths, weaknesses, opportunities, and threats.”
6. Risk Assessment and Contingency Planning
7. Management Organizational Planning
Once your strategies and risk management activities are defined, the next step is to determine the organizational requirements to implement that plan. Here again, Isaac wants families to get specific. “Both short term and longer-term organizational needs should be defined,” he says. You need to have a clear map of where the company is going, and what will need to be in place to make it all happen.
8. Family Leadership Development
Isaac laments that current leadership often neglects leadership and business development in subsequent generations. “Current family leadership often overlooks developing younger family members. They need to be prepared in advance to be ready to serve in management, participate on the business’ board, or function as good owners,” he maintains. Don’t let today’s mistakes get repeated tomorrow.
9. Stakeholder Communications Planning
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