Succession planning and ownership transitions, especially in family businesses, can be challenging. In many cases, the current owner and the successors have different levels of motivation and disparate timelines.
While ownership transitions benefit both the original owner and the new owner, there are many pitfalls to avoid. The devil is in the details, as they say. Aligning the expectations of both parties is paramount. Consider, for example:
Does the current owner and the successor expect the same outcomes?
Are both generations going to be willing and ready for transition at the same time?
The key to success is open and honest communication, as well as shared common values.
To that end, it may be worth formalising an agreement between generations. A “Family Constitution” is a set of principles that a family agrees to follow with regard to personal and business relations. This is a good place to define the goals and core values – not of the company – but of both generations. Succession planning needs to take into account both the transfer of property, as well as the opportunity to maintain or build relationship equity. The value of the business is certainly central, but it is not the only asset to consider.
Therefore, the help of experienced consultants in drafting a Family Constitution is indispensable. This neutral third party can help navigate the ins and outs of a family dynamic more objectively. Further, they can advise on whether this document should be a formal and binding legal agreement or more of a values-based declaration without creating any legal obligations.
Is your business transition-ready? Have you considered a Family Constitution for your family-owned business? How might your family and your business benefit from one?