How to Efficiently Take Over a Family Business through Inheritance
by Jennifer Xue
Succession isn’t an event, but a process. Thus, when someone “inherits” a family business, the actual succession process probably has occurred for years long before he or she actually received the business legally as an “inheritance.”
To successfully “inherit” a business, both the successor and the predecessor must work together to make it work. Started with a clear succession plan, which is professionally prepared by external counsels —from both the business and the legal sides, and followed by years of preparation, apprenticeship should be conducted with an awareness that the business should continuously exist while changing flexibly through the years.
It’s easier if there is only a singular successor, which means a clean-cut inheritance. However, when there are two or more successors, it would require years of preparation, as well as observation of who would likely be able to continue managing the business successfully.
The thing is, the founder oftentimes faces a dilemma that the family member that is intended as the successor may not show traits sufficient for the role, while another member does. More dilemmas are faced when he must divide the inheritance equally among children, while the successor is the only one working diligently. It’s also possible that the founder doesn’t trust the spouse of the successor.
First of all, ideally, all prospective successors have gained business employment elsewhere for at least three to five years. By gaining experiences outside the family business, they should have a pretty good idea of how the business world works in general.
Later, through apprenticeship with the business founder, all prospective successors can be reviewed carefully, thoroughly, and closely for a few more years. During this period, they should be rotated to various departments, so they’re exposed to all kinds of issues. This way, the review process would be comprehensive as well.
For instance, A may show strong managerial leadership, while B shows strong marketing and business development skills. Succession should be based on the strongest traits of the prospective successors, not what the founder wishes. It would be unwise to give away more shares to a “favorite child” who doesn’t have sufficient skills to lead the company successfully.
Conditioning early from the beginning that the succession process is “for the sake of the whole family,” this “greater good” philosophy should be played with a lot of care and not to cause unnecessary jealousy among the candidates. Both parenting and managerial skills are at play here. It would require a wise parent and a tactful manager to defuse jealousy and conflicts.
Return to agreements, protocols, and procedures that have been in place since the beginning of the business formation as “guidance.” While things may have changed over the years, and will continue to change, revisiting history would bring back the urgency of the formation and the right succession. All financial, legal, and tax records should be transparent and open to auditing, so the successors can grasp the totality of the big picture of the business.
At last, choosing the right successor depends on an objective and comprehensive performance review conducted by external counsels and consultants who are hired for this purpose. When the candidates have internalized the importance of professionalism and for the sake of the greater good, the succession process shall occur smoothly.
Jennifer Xue is the founder and chief editor of SiliconValleyGlobe.com.
Image Credit: Pixabay