This is the second of three blogs written for MarchFifteen by our Strategic Partner, Pierre Gauthier, President of Gauthier-Murtada and Partners. Pierre has a wealth of experience working with Family Businesses and is used as a trusted advisor by many organizations in this domain. We appreciate his insights here at MarchFifteen. We also know businesses and industries outside of Family and Independently-Held Businesses can benefit from his perspectives regarding business transfer and transition.
The Emotional Aspects of Family-Owned Business Succession: The Importance 0f Having “Meaningful Conversations” and “Setting the Stage” in the Right Way – PART TWO
By: Pierre Gauthier
In this blog I continue to explore areas that business owners need to pay attention to when transferring a family business. More specifically, I will look at questions that need to be addressed during this process, such as “What is the timeframe for transfer of a family business?” and “How will successors be chosen?”
What is the Timeframe for Transfer of a Family Business?
Successful family-owned businesses that have transitioned well into preparing for the transfer, have also taken the time to talk amongst themselves and made important distinctions as they progressed towards formalizing their process. The literature is quite clear on this matter it can take up to 5-7 years before a family owned business transfers successfully. Here are the questions that can be explored in the planning process:
- Are all potential parting owners willing to devote time to transition the business?
- Are all expectations aligned?
- Do we all know what we are going to do in the future before we part from power or responsibilities?
- Do we want management succession or do we want to transfer ownership?
Sorting out the answers to these questions will most certainly bring to light potential roadblocks or issues that are important to know at the very beginning of the transfer process.
Another aspect that I cover with the existing owners concerns is how much time each parting owner can devote to the transfer process. Successful family-owned businesses have realized the importance of getting professional advice in helping and guiding them because they realize how time-consuming transfer initiatives can be for them and for their business. Having a project-oriented advisor on board actually saves time and money, and provides the needed focus when there is also a business to run and manage during the transfer process.
How Will Successors Be Chosen?
The next delicate discussion I have in the preparation concerns how successors will be chosen. I say delicate discussion here because this is where things can derail. Family businesses don’t have the same selection criteria when they promote family members to run the business. In some cases, potential successors may be “wrong-sized” in their assignments and objective criteria may be lacking in choosing the “right” successor. Successful companies that manage this step well are quite clear as to the selection criteria and one of those is merit. In other words, the successor has to be competent to do the job he or she is assigned. Still, it can be very difficult for a father to choose which of his two sons or daughters is going to be the next president. So helping family members come to a realization that the business comes first is a challenging but necessary step in the planning process and can help avoid disappointments and conflicts later on. It is a critical step in the transfer process.
The last thing I cover in the planning process has to do with the communication plan. Do all people in the company know that the business is going through a business transfer initiative? Have all family members been formally apprised of the situation? Is there a business transfer advisor who can do a mild form of family counsel (also called a “comity”) who will set up and shadow this process? How will family members be informed throughout the process? Is there a place where family members can openly express their concerns, wishes and opinions regarding the transfer process? Who is leading the process? Is it a comity or a designated family member?
In the next blog I will discuss three other important steps that can lead to a successful transfer process. These have to do with: choosing the right successor; managing potential pitfalls during the transition period, and lastly how do we build and groom successors effectively.