Succession Planning for Your Multigenerational Family Business

Many small family business owners think of succession planning as a onetime event to tackle when they're nearly ready to transition from the business. They envision a sprint to pass the baton to someone waiting eagerly to take it.

But succession planning is a long game that can require a focused plan to execute over a period of years, perhaps decades. In a multigenerational family business, especially with different branches in the family, this can be complex. There can be multiple considerations and many people to involve, from other family members to various professionals.

You can aim to have the process well-documented to minimize complications when it’s time to execute the plan. Here are some tips to help make your multigenerational family business plan.

Start Planning and Communicating Early

Multi-family business owners may be hyper-focused on building their enterprise in its early and growth stages, while also growing their families. All of that – along with the potential ups and downs – may delay them from addressing and starting succession planning.

“By the time they look up and realize they've created a potential multi-generational platform, there may be less runway,” says Katie Slater, a legal strategist at Sageworth, a private trust company and shared family office with offices in Lancaster, PA and Sioux Falls, South Dakota. "Planning as early as possible can be essential."

Sam Brownell, CVA, CFA, MBA, managing director of Stratus Wealth Advisors, LLC in Kensington, Maryland, agrees, noting early communication can be key to business continuity. Business owners should communicate early on with their family, vendors, community, and others about their plans for the business so there’s no lapse in service or continuity, Brownell says. That way, if an unexpected event triggers a change, people have a sense of what's to come.

It can help to think about succession planning as a process to discuss with family members over years, he notes, so any unpleasant surprises, like sudden illness or death, don't threaten your family business.

“You want your customers, your employees, and the community to not notice an enormous difference when 'generation current' sells to 'generation next,'” he says.

Structure Your Business Properly

Thomasina Williams, founder of Sankofa Legacy Advisors, lawyer, and former private banker, encourages families to put a specific business framework in place.

She refers to the Three-Circle Model of the Family Business System as a recommendation to her clients, many of whom are wealthy business owners with complex business structures who own multiple businesses. The Three-Circle Model of the Family Business System was developed at Harvard Business School by Renato Tagiuri and John Davis in 1978.

“You've got the business subsystem, comprising those who manage the day-to-day business operations,” she says. “There’s the family subsystem who are the family business owners, but also handle family education and stewardship. The third subsystem is the ownership group, which elects the board of directors."

This ecosystem helps make roles in the business and family clear and determines responsibilities, expectations, and boundaries.

This framework can also make transition planning more organized, creating clear governance and related documents for discussing succession. The documents would help determine who could or could not work in the business.

Even smaller, less complex multigenerational family enterprises like a small restaurant group or real estate investment enterprise need proper structure, Brownell says.

"It doesn't have to be terribly sophisticated," he says. "It can just be something in writing the family uses to communicate agreements they’ve put in place if there's an issue."

Also, if a family member wants an enhanced role in the business, a family governance document would spell out whether that's possible. The family also might want to change the document to accommodate a request.

Include All Relevant Voices

In family discussions about the business, it can be crucial to try to include all the key members of the family across generations. That includes all those working daily in the business or who have some other ownership interest in the enterprise.

A smaller family business could also have internal, less formal, but regular family meetings to discuss business issues and potential changes.

“You want your customers, your employees, and the community to not notice an enormous difference when 'generation current' sells to 'generation next.'" —Sam Brownell, managing director, Stratus Wealth Advisors 

"Within that family governance structure, it often helps to have a multigenerational board for a family business," Brownell says. “The family board discusses the way the family does things. It's a way for the older generation to teach family business values and traditions and an opportunity for the younger generation to share ideas about how things are changing."

Family members across generations can actively listen to each other, valuing each other’s perspectives, ideas, and feelings, especially in major business decisions.

Help the Incumbent Generation Plan Next Steps

Family businesses can consider parallel planning, which considers the business transition in a broader context.

“This is a process I think is important to think about holistically,” says Williams. “Part of the business transition process is helping the incumbent or senior generation plan their next move."

Sometimes younger generations are eager to move up in the business but believe the older generation is holding them back. That may not be true. The elders may feel stuck or afraid about what’s next for them, which can make them hesitant to leave.

Thinking about the incumbent generation can be as important as preparing the rising generation for success. Families can help their senior family members feel safe about leaving, knowing the business is in good hands and that they will be cared for as well.  

Get Expert Help

This process can be complex with multiple moving parts; a professional team of varied experts can help. You might consider hiring professionals who specialize in family business succession.

This specialized help typically focuses on only professional advice. A CPA or financial planner, along with a lawyer, may offer additional suggestions, but there are also other consultants you might consider. For example, a therapist can help you deal with the significant changes that come with this process and with any family members experiencing mental health issues.

In fact, since this is a multiyear process, these people can be part of your team of trusted advisors long before any business transition actually happens.

The Takeaway

Do you have your multigenerational family business master plan in place? This can make the succession planning process less painful and help preserve your family’s business legacy.

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