When you read or hear the term ‘family business’ most people automatically think of a father and son collaboration, a corner shop or some kind of local amenity. This image of your typical family business is somewhat distorted; first because there is no ‘typical family business’ and secondly, some of the largest businesses in the world are run and owned by members of the same family.
Number 1 on the list is Walmart owned by the Walton family. We also have the highly recognisable international names of Volkswagen, Ford, Nike, Samsung and Ikea. Closer to home we have the likes of Primark and Twinings owned by the Weston family and Arnold Clark Automobiles run by three generations of Clarks’.
With the small scale economic entity myth debunked, it’s important to look at how family businesses of all sizes survive and prosper.
A recent survey of family business owners found that a massive 97% wanted to pass their business onto the children, with 68% saying they are keen to pass it on to keep the family tradition going. This isn’t surprising considering that there are two main reasons why people start a business:
- Providing for yourself financially
- Provide for your family and the future
Succession planning is essential!
Passing your business down doesn’t just happen automatically. Succession planning is the process for identifying and developing the next generation giving them the ability and knowledge to fill the key business positions. Successful succession planning will ensure your business survives and thrives when it is your time to step down or you take ill or even die unexpectedly.
Rather scarily, according to Families in Business, 96% of family businesses have no succession plan! That really is an incredible and disconcerting figure, further exacerbated when coupled with 36% who say there is no need for a succession plan. If you don’t plan properly, the hope of a smooth, successful transition is almost non-existent.
What do you think the most successful companies have done?
- Ford was founded by Henry Ford in 1903 and is run today by Executive Chairman and great-grandson, William C. Ford, Jr.
- Samsung was founded by Lee Byung-chul in 1938. Following his death in 1968, his son, Lee Kun-hee took the reins and is still in charge. He has lined up his son, and the founder’s grandson, Lee Jae-yong, who is currently the Vice Chairman of Samsung.
Fail to prepare, prepare to fail
Succession planning shouldn’t be something you undertake on your own; joined up thinking is the key. The personal Wills of the company’s directors have to line up with corporate structure documentation, otherwise your business is left in a vulnerable position. According to Families in Business, just under 50% of family businesses admit they are vulnerable should something unexpected happen to a key figure.
In nearly half of all family business collapses, the failure of the business was precipitated by the founder’s death. Why take the risk of the business going under by failing to plan? Putting a little time, effort and thought in now to your business will mean your family continue reap the rewards in the future.
Communicating with your fellow directors and business partners is vital to make sure your business not only continues in the future, but continues to be successful. Gorvins specialist lawyers can provide a calm and peaceful environment for exploratory conversations between boards of directors and help them navigate a way through this emotional and complex issue.
By Christian Mancier, Corporate-Commercial Partner, Gorvins Solicitors