5 Steps to Prepare Your Family Business for the Next Generation

Successfully engaging the next generation in a family business often depends on how well the parents accommodate the personal objectives of their children. David Harland, Managing Director of FINH

As far back as The Iliad, we’ve recognised there’s a thin line between “influencing” and “controlling” our inheritors. Achilles saw fit to rally against the oppressive grip of his master, Agamemnon, essentially because he didn’t like being told what to do.

Human beings all share Achilles’ instinct to act in self-interest and kick against authority – but when it comes to succession, family businesses ignore this at their peril.

Reducing the age gap

The challenges associated with engaging successors are best understood as “gaps” between the elder and younger generations.

There are not only differences in age but in credibility, as the younger generation looks to prove itself in the eyes of more established members of the company and other key stakeholders.

There are also differences in communication, as they invariably adopt outlooks and attitudes that stand them apart from their forebears.

The five steps below set out how your family business can help overcome these gaps.

A mutual approach towards managing succession should reveal itself, as family members build up the confidence to articulate their concerns as well as iron out any differences through open and honest discussion.

Step 1: Support early involvement

Giving the next generation responsibility for creating agendas for family council meetings quickly establishes trust. They may become involved in these meetings by simply observing them from an early age.

Doing this has a dual advantage. It exposes them to the strategic side of the business, giving them a solid footing so they can make informed, valuable contributions to discussions before they take over the reins.

Secondly, it helps to close the authority gap in the eyes of older members and senior staff, who will be more receptive to future input from someone they might otherwise still regard as the “boss’s child”.

Step 2: Share your vision

Sharing the company’s guiding vision with younger members – by setting a specific philanthropy goal, for example – can help to engage them in the shared values of the company.

Witnessing the positive impact the family business has on the wider community may inspire them to take up the mantle.

It’s also important that they are made aware of the ethics that lie behind business decisions and recognise how these fit into the company’s long-term vision.

Step 3: Invest in education

It’s vital to expose the next generation to the education they need to do a great job when they take over.

One way to do this is by creating a summer internship program at the family business. In the classroom, interns can learn about business ownership, advisory boards, governance and accounting skills.

Outside the classroom they can gain exposure to the day-to-day practicalities of running a business, and take the opportunity to develop their own professional network through informal interactions at trade events and board meetings.

Recent studies show that a large proportion of the next generation in family businesses are well educated and keen to put what they’ve learned into practice.

Step 4: Encourage collaboration

Developing trust through collaboration is also essential. Encouraging cousins, for example, to go on a project or service trip can help to build a sense of camaraderie and strengthen family bonds outside the reach of established members of the business.

The cousins may organise and host a charity event allowing them to rally around a common cause and find ways to interact with each other in a safe, positive and constructive manner.

Step 5: Embrace innovation

Family businesses historically struggle to keep up with their competitors when it comes to technology. However, evidence suggests that the next generation are keen to take advantage of the updates available to existing IT systems. Trusting them to take the initiative is an effective way to future-proof the business.

Adopting new software under their influence may result in a more efficient accounting process, for example, help to streamline the sales pipeline, or give customers access to cutting-edge online payment options.

Getting the next generation involved will also foster a culture of creativity and show them you are willing to adapt to change when succession eventually occurs. It will also bring technology to the forefront of company conversation and make your business better prepared – and more resilient – when further developments in your industry inevitably occur.

This article was first published in CPA’s InTheBlack: https://www.intheblack.com/articles/2017/06/07/prepare-family-business-next-generation

If you are looking for a family business adviser, please don’t hesitate to call us at FINH on 3229 7333.