Transition planning and implementation
Recent times have acted like a sharp reminder of the need to plan ahead for unforeseen and sudden events. Family businesses, out of all, are the most impacted by such events.
High-net-worth individuals and their families, those with US$5 million or more in net worth, are expected to transfer a combined US$18.2 trillion by 2030, according to a Wealth-X report. However, most family businesses do not have a succession plan in place that is fit for the purpose. Families tend only to consider only wealth transition during times of conflict or on death of the owner.
Transition: Readiness for succession. Implementation of succession plan.
A fit-to-purpose transition is one which ensures that the successor induces with both – the family’ mission and the businesses’ growth objectives. Most family businesses either do not have a succession plan in place or they consider having a successor as a complete process.
But let us share that there is no magic solution when it comes to family business succession and transition.
Having a successor does not ensure a successful succession.
Having a good succession plan also does not ensure a successful succession
Having an effective succession plan, a chosen successor and a well-structured transition increases the chance of successful succession.
Transition: A methodical approach to de-risk the successor, the legacy, the family, and the business
Large family businesses operate globally. Having a successor to lead the business across the globe is far from a straightforward process. The responsibility of the family business to choose the right successor and to enable the successor to lead the family business, requires due care and a bullet-proof constitutional approach.
In our recent experience and client conversations, many family business owners expressed concerns about whether the next generation would even take an interest in the business. The possibility that there could be no clear successor to the business is not something easy for owners to accept. Many had also confessed that their sons had already parted ways earlier in the business life, while still being part of the family. Whether the business is sold, professionally managed or the next generations assumes leadership, this is not an aspect in which assumptions can be made.
Family businesses should not wait for an event to initiate conversations about succession and transition.
SOCH Approach to Transition
The primary purpose of transition is to secure confidence of all stakeholders for the chosen successor and the successor’s unequivocal confidence on the family and the business. To achieve this, transition ensures that a clear picture of the present and the expected future is mutually understood and committed for.
Without the confidence of the predecessor, the successor and the business stakeholders, a succession is bound to be struggle if not fail.
A succession plan is not a static, but a dynamic process. It should be considered as a living thing.
As business grows, family relationships get altered with births, deaths, marriages and other life events – all impacting the dynamics of the family business. In addition to this, external events also impact the best laid plans of the family business.
When it comes to family businesses, succession and transition planning is a complicated affair. No two generations are the same and often, planning for succession isn’t as easy as it may seem. Families require a clear long-term eye separating the distinct needs of the family and the business to make their vision a reality.