Navigating successful business transfer to the next generation

Sale or Succession? - a Family Decision

While selling the company will be attractive to some owners and founders, many will want to pass the torch to the next generation.

Our last year’s CEE Family Business Survey showed that succession planning is a growing challenge for many family-owned businesses in the region. In this survey, almost three-quarters of leaders (74%) reported that ensuring their business stays in the family is a key personal long-term goal. However, the survey also suggested that many first-generation leaders had not taken appropriate steps to achieve this goal. Only 69% of them have some form of governance policy in place within the business compared to 81% globally - and 10% fewer than global averages had a document including a last will and testament (25% in CEE, 35% globally).

This concern over succession planning is shared by NextGen. Just over half (51%) of NextGen in SEE are aware of a succession plan in their family business. However, a significant minority of 18% were not involved in its development. Concerningly for the family businesses’ importance to SEE economies, as many as 43% reported that their business had no succession plan in place, and a further 6% said they were unaware of a plan.

Among NextGen in SEE, 53% believe the ability or readiness of the current generation to retire is a difficult aspect of succession and 45% believe proving themselves as a new leader will also be difficult.

Good succession planning often means balancing business with emotions given the complex family dynamics at play. Some family members may perceive inequitable treatment in decisions around who takes over the business, and there may be disagreements between those who are passive shareholders and others who are actively involved in managing the company. This is a key reason why it’s important to bring the whole family together to align on a shared vision, values and purpose so you can build a strong foundation for ensuring mutual success.

As with selling your business, it’s important to start the succession process early, usually a minimum of three years in advance of the transition to address the various issues that can arise.

Key considerations include:

The crucial step is to identify who should be part of your business family and which family members should be involved the business. It's essential to plan the right timing and approach for transferring ownership and managing the increasing number of family members involved.

It is essential to clearly define where you see your business in the long term. What are your expectations from the business, and what role do you envision it playing in the family’s legacy? On the other hand, it is important to determine what you, as a family, can and must offer the business to drive its growth, and what the business can expect from you.

To turn your long-term vision into reality, it is necessary to design a robust corporate governance framework tailored to your business’s long-term goals. You must decide on the optimal management structure for the future, ensuring that your family retains control over the business moving forward.

Effective management begins with clear boundaries between ownership and operational control. You should clearly define the roles and responsibilities of both capital owners and business managers, ensuring that the right people are in place to drive the business forward.

With corporate governance and roles and responsibilities defined, it is important to understand how you, as a family, control the business and set the framework for involving family members in the business. A family constitution will clearly outline how to achieve your tasks and goals and define both family and corporate governance.

Sale

Sale or Succession? - Family decision