The sensitive process of handing the reins of a family business over to the next generation, with advice from Michael Mack
Why do we do what we do? This is one of those big philosophical questions that we all ask ourselves from time to time. But when it’s time to consider passing a family business to the next generation then it’s critical to answer it.
Many farming and outdoor-based businesses have taken generations to create, yielding business and personal opportunities for families. These businesses also result in the creation of people. For many, their land-based enterprise will have shaped their lives; providing structure for education, work opportunities and friendships, so the idea of leaving the business is scary.
For the younger generation to step up to the table and lead a business onto greater things is also a daunting prospect. Can I live up to my parents’ expectations?
These two views make it easier to ignore succession planning, leaving it to chance or in many cases until parents sadly pass away. Is it so bad to leave the process? Having spent time with farming and rural businesses before, after and during succession planning, I have reached the conclusion that poor or no succession planning is not an option, that is to the business or family’s benefit.
Every business goes through a standard business cycle; an early period of growth, learning and growth, plateauing and then, as the leaders’ attitude to risk changes and as the sector moves on, a period of decline. It is the need for the business vigour generated by fresh ideas that drives businesses of every size to look at the succession planning of the management team. If a family fail to address succession planning, the business can undergo a significant reduction in economic growth, a problem when new generations are looking to derive an income from its assets.
It is the family viewpoint that is the most important reason for positively dealing with succession. We have all heard of farming families that have been pulled apart as a result of poor succession planning. Siblings not talking, destruction of family assets, and in some cases legal action, which destroys all strands of what makes a family. You only have to Google ‘Cowshed Cinderella’ for a good example of poor planning.
Coming back to my opening question, why do we do what we do? If we as a family fail to understand why we manage a set of assets in the way that we do (to meet an objective that all understand, then we can be sure that the business will not achieve what we need to thrive as a family; this is especially accurate through the period of generational change.
To keep the process as simple as possible you will need to work as a family to set out an objective for the business. This means considering the estate, the business, a retirement plan and the transfer of management responsibilities between the generations. So, how do you identify the direction in which you and your family wish to take the business? There are a few simple rules to follow to make this happen.
Rule 1:Understand your role and responsibility
Each member of the family and business has a responsibility for the process; from the principle partner making sure that the process is started and that the momentum is maintained, to the successor making sure they show the skills and focus to make the process take place and respect others in the process.
It’s not uncommon to hear the incoming generation say that the money and assets belong to the parents and it’s up to them to do what they want. Succession planning is a lot more than asset transfer; it’s the transfer of management control between generations. If a family takes this approach then the children must completely respect their parents’ decision and understand that other family members may engage with the process.
Rule 2: Have a family meeting
The first family meeting is a scary prospect for many. For some, it is a sign that the process has started, while for others it is the beginning of unavoidable conflict. However, without sitting down as a family it will never be possible to identify what the family objective is and how everyone views the future.
To help make this meeting a success, you may find the following tips helpful:
- Never meet around the family dining table. When a family meets around the dining table, members are likely to revert to family traditions; with dad at the head, children all in their historic seats and mother at the end. Find a meeting space away from the business. If we get a request for one of these meetings to take place in the office we always welcome them with open arms and never charge.
- Make sure there is an agenda. The aim of the meeting is to bring people together not surprise them. Make sure that not only is there an agenda but that everyone has plenty of time to read it before the meeting.
- Agree on some rules as a family. This sounds simple but many families need to establish some simple rules to help ensure that everyone has a voice. During the early stages it is important that the principle partner is responsible for the decisions being made. It is also important that the whole family has the ability to contribute to the process.
- Don’t be afraid to bring in external support. Many families need an outside facilitator to join family meetings. Their role is to help the family explore issues in a way that prevents conflict. Having sat in many of these meetings as the facilitator I have been able to help the family both cover the agenda and do so without some of the expected conflict.
Rule 3: Make a start
It is easier for a family to ignore succession planning; this results in the process starting later and later, if at all. The right time to start the process of succession planning is different for everyone. With a large proportion of farmers aged in their 60s and believing it’s still too early for them to identify a successor, we are sure that most families start the process too late.
A fundamental reason why the process is put off is that the older generation has a view that by starting the process of generational change it means that they have to leave the farm. The most successful succession plans take up to 15 years to implement. Starting the process does not mean immediate change.
It may be too early to formally start the procedure when the children are still at school, but it can be a valuable step to make sure they understand the business and why certain decisions are made. As the children grow and make life decisions about things such as education, jobs, partners and where to live, it is important that everyone understands the expectations that are placed on them.
However it is also important to remember that the process of succession change will have an impact on everyone involved. During the period of change there will be conflict between family members, family dynamics will change and not everyone will be happy with the decisions that are reached.
Rule 4: Step away.
The final and most important step when planning any generational change is for the older generation to step away from the business leaving their child to take over the reins. It is all too easy to start the process and lead the younger generation into the business, then find the personal challenge of leaving too difficult to deal with.
About the author
Michael Mack is a business consultant for Savills. He has worked with family farming businesses for over 15 years and has developed a keen interest in succession planning for farmers. His work in this area has included undertaking a Nuffileld Farming Scholarship, providing key note speeches, running farmer workshops and providing one-to-one consultancy for families in the area of succession. 01603 229 212 / www.savills.co.uk