Safeguarding your business for future generations
Many companies in the food industry are family owned and operated. Only one in three family businesses survive into the second generation[1]. Contributing to this discouraging statistic is the failure to identify, prepare, and mentor a successor and the lack of a clear governance structure. Both will leave your business vulnerable to uncertainty and disruption, impacting the financial stability of your family and other stakeholders.
Succession planning is both time-consuming and complex, leaving many business owners wondering where to begin. Add the discomfort of broaching difficult subjects with your family like your death or disability and it inevitably takes a backseat to more immediate concerns. The consequences of not having a well-documented, well-communicated succession plan could mean the difference between your company thriving or failing when you retire. If you start working now with your family to build a common vision for the business that clearly communicates leadership roles, goals, and growth plans, you increase the likelihood that your business will be among those that survive into future generations.
Here we have outlined the key things to consider as you start building your succession plan.
Leadership (who will your people follow?)
Perhaps the most critical decision you need to make is choosing your successor. Waiting until the eve of your retirement is unlikely to result in a smooth transition. The entire family has to be in agreement with the decision and therefore, the sooner this conversation takes place, the better for all involved. Identifying your successor well ahead your retirement also means you can evaluate their current skills and determine if additional training and/or outside work experience is needed before they take over. It allows for mentorship, providing the opportunity for your successor to learn about the business from the person who knows it best – you.
In some instances, the choice is obvious. You have a son or daughter who has been working at your side for many years and who knows the business inside out. But are they ready and willing to take on a leadership role and make the difficult decisions that come with that?
If you have more than one child, and particularly more than one working in the business, picking a successor can be a very difficult decision. Birth order has traditionally played into the decision but he/she may not be the right person for the job. Enlisting the help of an external party to participate in the identification process is helpful because it removes the likelihood that family biases impact the decision.
Additionally, it is important to remember that not all family members are suited to work in the family business, and as such, there will need to be a discussion with your family to lay out who will have active and non-active roles. Nobody relishes the idea of informing a family member that there is no job for them in the business but that may be the reality. In the end, their non-participation may benefit them more as the business thrives under the leadership of others.
Governance (decision making)
Control of the business must ultimately rest with your successor. The entire family cannot weigh in on each and every decision because the chances of reaching a consensus are marginal and the decision-making process will grind to a halt. At times there will be decisions that require everyone to participate so having a conflict resolution mechanism in place is crucial. This will minimize family disagreements and disruption to business operations. You will also need to clearly define what roles and responsibilities other family members and senior staff will take on and draft a contingency plan to ensure the business survives in the case of illness, accidents, or death.
As you depart the business, and more family members get involved in the day-to-day operations, think about whether the company would benefit from having a board and if it should consist solely of family or not. It’s prudent to consider the appointment of outsiders because they can bring fresh ideas and new perspectives as well as balance out family dynamics. Having outsiders on the board is also beneficial when discussing matters such as remuneration or dividend policy. Often there are contrary opinions on whether money should be reinvested into the business for growth or distributed to shareholders. It could be the case that one sibling may believe he/she should be paid more because they work the hardest. Non-family board members can temper these discussions by offering impartial advice and candid opinions, leading to more productive conversations.
Transparency (communication is key)
Inasmuch as possible, have open and honest discussions with family members as you move through this process. It is important that everyone is aware of your succession plan and that the family agrees with it as a whole. As your retirement approaches, reach out to your customers and suppliers. A well-communicated succession plan will give them peace of mind that there will be minimal disruption to the business as you transition out. Additionally, it is vital that you talk to employees. They need to trust a strategy is in place that fosters the health and longevity of the business, while minimizing risk to their livelihoods.
Retirement (where do you go from here?)
What will your role be going forward? Giving up control is not easy and may require a transition strategy for your benefit as well as new management’s. A comprehensive transition strategy will also include how you intend to fund your retirement.
Careful succession planning will allow you to constructively deal with the unexpected while preparing your business for the future. Getting started early increases the probability that your business will remain prosperous following your departure and will continue to provide a lasting legacy for you and your family.
[1] Golob, Leah “Ten reasons why family businesses fail.” The Globe and Mail, March 3, 2018,