December 10, 2018

4.2 Succession planning

Many egg businesses throughout Europe are family owned operations.   Indeed the EU egg sector relies heavily on the continuity and success of the family business.

In the USASME sector less than one third of family businesses survive the transition from first to second generation ownership. Of those that do, about half do not survive the transition from second to third generation ownership.    As an example of EU statistics, In Ireland in 2008, the EU Commission commissioned Tom Martin & Associates/TMA to  conduct  a study “Overview of Family Business Relevant Issues”.  Family owned businesses are estimated to account for three-quarters of all enterprises in Ireland and to account for half of employment in the private sector. Additionally, it has been estimated that 31 of Ireland’s top 50 private companies are family owned.

The respected USA  based John F. Baugh Center for Entrepreneurship, tell us there are four basic reasons why family firms fail to transfer the business from generation to generation successfully:

  • Lack of planning (The primary cause for failure)
  • Lack of viability of the business
  • Little desire on the owner’s part to transfer the firm.
  • Reluctance of offspring to join the firm

However, research has shown that with the right plans in place, the business, in most cases, will remain healthy.

There are four plans that make up the transition process. By implementing these plans, you will virtually ensure the successful transfer of the business within the family hierarchy.

The plans are

  • A strategic plan for the business will allow each generation an opportunity to chart a course for the business . Setting business goals as a family will ensure that everyone has a clear picture of the company’s future.
  • The family strategic plan establishes policies for the family’s role in the business. It seeks to avoid later conflicts about compensation, sibling rivalry, ownership and management control. It may include
    • an entry and exit policy that outlines the criteria for working in the business.
    • A mission statement that spells out the family’s values and basic policies for the business.
    • Addressing other issues that are important to your family.
  • A succession plan will ease the founding or current generation’s concerns.  It would typically outline how succession will occur and how to know when the successor is ready. Many founders do not want to let go of the company because they are afraid the successors are not prepared. Often, heirs sense this reluctance and plan an alternative career.
  • An estate plan is critical for the family and the business requiring specialist tax advise regarding inheritance taxes.

A very useful document with templates is available & goes into valuable detail on each of these plans. While it was published over a decade ago, it is still extremely relevant today.

Title       TRANSFERRING MANAGEMENT IN THE FAMILY-OWNED BUSINESS

By Professor Nancy Bowman-Upton

Link http://archive.sba.gov/idc/groups/public/documents/sba_homepage/serv_sbp_exit.pdf

Blogs on the topic of Succession Planning

http://bx.businessweek.com/succession-planning/blogs/