How does the founder of a family business cope with the sharing of power and control?
As family businesses grow larger and more successful they gradually outgrow their original business structure and founder’s experience. This is when family firms need to professionalize their business with a more formal corporate structure and adopt a more collaborative management style.
Outgrowing the founder’s experience
The founder’s knowledge and experience are usually in specific skill areas like engineering or sales. They are best at the idea and launch stage, but once the business begins to grow their boundaries of skills and experience are tested. They often know only as much as they have taught themselves.
Formalizing the business
The company also begins to outgrow their smaller organizational structure and needs to acquire a more formal structure. Continuing to run the family business as it originated can become stifling to existing employees and be a deterrent to the recruitment of new employees. Banks also prefer a less-centralized structure with less dependence on a sole founder and more emphasis on an experienced management team.
The breaking point
Eventually the business reaches the scale and size where the founder needs to relinquish some responsibility to others. This is a sensitive issue to most founders who may view giving up responsibility as a loss of control. They may perceive this diminished authority and control as a sign of weakness.
Founders can react to the changes in one of two ways:
1. They may resist the change and become more insular, keeping things even closer to the vest
2. They may accept the change as an opportunity to share their vision and become more collaborative
There are two common methods of relinquishing authority
1. Developing family members through succession planning
2. Hiring outside non-family executives
Staying within – developing family members
The most logical step in delegating responsibility is to groom the children within the family business to take on more responsibility. The founder usually has a high level of trust with family members and has an innate desire to have them succeed in the business. Strangely, founders can find it harder to delegate responsibility to a child, because they may not have confidence in their children’s skill level.
Going outside – bringing in non-family talent
Another common option is to bring in outside non-family executives to share responsibility. This outside talent can help guide the business through the later stages of growth. They also bring in expertise to supplement skills that the founder may be lacking. Relinquishing control to outside non-family talent can often be more comfortable than to a child or other member of the family. They are a more neutral party, which helps to remove any personal feelings. In some cases, they can also serve as a way of avoiding the sensitive succession issue of choosing between multiple children to lead the company.
What’s the best solution?
Some family businesses choose a hybrid solution by bringing in an outside interim CEO. This is most effective when the younger generation is not ready for the responsibility, but the founder wants to keep the family in control of the business. An interim CEO is usually hired with the understanding of being in the position for a set period of time with the future expectation of a family member taking over. An interim CEO can be a trusted advisor who has worked closely with the business family or an industry veteran who has a proven track record. An interim CEO can be a good solution by combining the best of both options.
What about the legacy of the business?
Giving up any control in a private business is hard for a founder to accept, especially in a family business where it also involves the added personal aspect of the family legacy. As the business grows, its requirements and challenges change.
Successful companies learn to diminish the “emotional” aspect of the business by removing the pressure of the family legacy. Parents who can confide in their children that the legacy is not important to them can help the younger generation be more accepting of the changes. Likewise, treating the business as a business and not as an inherently personal entity can help the founder become more open to others sharing control and responsibility.
These issues can cause family conflict if not handled sensitively. Using an outside advisor who can facilitate the process can help reduce conflict. The process doesn’t have to be complicated, but having a neutral party working with the business can help prevent the personal issues from creeping in and keep the process moving forward.
Learn more about succession planning at http://www.financialconfidence.com/services-unique-risks-2/exit-planning/
Wednesday, 19 August 2015
Monday, 17 August 2015
5 Star Review for Financial Confidence Advisors
Thank you for the review Vic R. "My experience with Keith has been both
in my company with life insurance and company benefits, as well as
personally for family estate planning. As a result of working with Keith
our company group benefits costs have been reduced while improving our
employee benefits. Keith’s recommendations make our company and family
financial planning easy.
http://FinancialConfidence.com 604.629.2853 Financial Confidence Advisors - Vancouver Financial Planning for Business Owners Review Exceptional 5 Star Review ★ ★ ★ ★ ★
Financial Confidence Advisors
Suite 1220-800 W. Pender Street
Vancouver, BC V6C 2V6
Tel: 604.629.2853
http://FinancialConfidence.com 604.629.2853 Financial Confidence Advisors - Vancouver Financial Planning for Business Owners Review Exceptional 5 Star Review ★ ★ ★ ★ ★
Financial Confidence Advisors
Suite 1220-800 W. Pender Street
Vancouver, BC V6C 2V6
Tel: 604.629.2853
Tuesday, 11 August 2015
6 Tips for Business Family Planning
Financial Planning in the Family Business: When Crisis Strikes, Are You Ready?
In the aftermath of a personal tragedy, would your family business be ready for an orderly transition?
“We were forced to prepare our family business succession and estate planning hastily, not knowing whether our father would ever return to work”
Our family was anxiously waiting for my father to arrive at the office for an important bank meeting presentation. It wasn’t unusual for him to be running late, but we were already nervous about the presentation, and his being late only added to our stress.
After finally deciding to start the meeting without him, we were only a few minutes into the presentation when we were interrupted and informed that our father had been involved in a car accident. We were told that they were taking him to the hospital. Not knowing the seriousness of his injuries, our initial reaction was to continue on with the meeting, not wanting a personal matter to interfere with the business. This may sound insensitive, but honestly, this was our first reaction. As a family business member you are brought up to prevent the family issues from creeping into the business. After a few minutes, we came to our senses, stopped the meeting, and rushed to the hospital to see how serious our father’s injuries were.
Upon arriving we learned he was in critical condition in the emergency ward of the hospital. He had experienced serious head injuries and it was touch-and-go for several days on whether he would survive the accident injuries.
He did recover, but had a long road ahead of rehabilitation, and it was uncertain whether he would ever return to work. We were actually fortunate that it wasn’t more tragic, because my parents usually drive in to work together, and this day they had chosen to drive in separately. (A True Story)
From this crisis we learned the importance of proper succession and estate planning the hard way. We had started initial discussions about each of these plans, but had been distracted by ongoing business and had failed to complete the process before the incident.
As a family, it can be difficult to start the succession and estate planning process. Merely mentioning the plans can often stir up mixed emotions and sensitive issues including family conflict, future leadership, sibling rivalry, and retirement planning.
Rather than think of it as a monumental process, it often helps to break estate planning down into smaller more manageable pieces.
Most importantly, family businesses need to initiate the financial planning process. Having effective succession and estate plans in place will provide you with a greater sense of comfort and security. That way you will always be prepared “to expect the unexpected.”
6 Tips for Business Family Planning
1. Begin with a simple “what if” crisis plan – a top-level action plan in the event of a crisis (usually seeing how unprepared we are helps to frame the urgency of the process).
2. Hold regular family meetings to discuss the strategic plan of the business (Including gaining consensus on the strategic direction of the business and business governance).
3. Prepare a succession plan (Including decisions regarding leadership roles and future involvement of family members).
4. Discuss the exit planning strategy of the senior generation (Including a discussion on the business and personal wealth of the senior generation).
5. Prepare an estate plan (anticipating and arranging for the disposal of an estate during a person’s life).
6. Working with outside facilitators and business advisors can help the process move forward by providing a sense of discipline and preventing sensitive issues from becoming conflicts.
Most importantly, family businesses need to initiate the financial planning process. Having effective succession and estate plans in place will provide you with a greater sense of comfort and security. That way you will always be prepared to expect the unexpected.
Here are some benefits to financial planning for business families:
In the aftermath of a personal tragedy, would your family business be ready for an orderly transition?
“We were forced to prepare our family business succession and estate planning hastily, not knowing whether our father would ever return to work”
Our family was anxiously waiting for my father to arrive at the office for an important bank meeting presentation. It wasn’t unusual for him to be running late, but we were already nervous about the presentation, and his being late only added to our stress.
After finally deciding to start the meeting without him, we were only a few minutes into the presentation when we were interrupted and informed that our father had been involved in a car accident. We were told that they were taking him to the hospital. Not knowing the seriousness of his injuries, our initial reaction was to continue on with the meeting, not wanting a personal matter to interfere with the business. This may sound insensitive, but honestly, this was our first reaction. As a family business member you are brought up to prevent the family issues from creeping into the business. After a few minutes, we came to our senses, stopped the meeting, and rushed to the hospital to see how serious our father’s injuries were.
Upon arriving we learned he was in critical condition in the emergency ward of the hospital. He had experienced serious head injuries and it was touch-and-go for several days on whether he would survive the accident injuries.
He did recover, but had a long road ahead of rehabilitation, and it was uncertain whether he would ever return to work. We were actually fortunate that it wasn’t more tragic, because my parents usually drive in to work together, and this day they had chosen to drive in separately. (A True Story)
From this crisis we learned the importance of proper succession and estate planning the hard way. We had started initial discussions about each of these plans, but had been distracted by ongoing business and had failed to complete the process before the incident.
As a family, it can be difficult to start the succession and estate planning process. Merely mentioning the plans can often stir up mixed emotions and sensitive issues including family conflict, future leadership, sibling rivalry, and retirement planning.
Rather than think of it as a monumental process, it often helps to break estate planning down into smaller more manageable pieces.
Most importantly, family businesses need to initiate the financial planning process. Having effective succession and estate plans in place will provide you with a greater sense of comfort and security. That way you will always be prepared “to expect the unexpected.”
6 Tips for Business Family Planning
1. Begin with a simple “what if” crisis plan – a top-level action plan in the event of a crisis (usually seeing how unprepared we are helps to frame the urgency of the process).
2. Hold regular family meetings to discuss the strategic plan of the business (Including gaining consensus on the strategic direction of the business and business governance).
3. Prepare a succession plan (Including decisions regarding leadership roles and future involvement of family members).
4. Discuss the exit planning strategy of the senior generation (Including a discussion on the business and personal wealth of the senior generation).
5. Prepare an estate plan (anticipating and arranging for the disposal of an estate during a person’s life).
6. Working with outside facilitators and business advisors can help the process move forward by providing a sense of discipline and preventing sensitive issues from becoming conflicts.
Most importantly, family businesses need to initiate the financial planning process. Having effective succession and estate plans in place will provide you with a greater sense of comfort and security. That way you will always be prepared to expect the unexpected.
Here are some benefits to financial planning for business families:
- To navigate all the different products and tools of retirement, tax and estate planning with ease.
- To coordinate all the options to provide you the best possible result.
- To ensure that all your trusted professional advisors are informed and working towards the same collaborative goal.
- To enable you to grow your career or business, realizing your retirement dreams, giving back to your community or enjoying your family and friends.
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