Family businesses are a cornerstone of the US economy – contributing significantly to generational wealth, job creation, and local markets. One challenge all family businesses face is succession to the next generation. Without a thoughtful and well-executed succession plan, even the most successful family enterprises can struggle to transfer the business to the next generation.
Creating a sound succession plan not only ensures that the family business continues to thrive, but that it also preserves profitability, family harmony, and legacy. According to an Ernst & Young Global Family Business Study, over 70% of family businesses want the business to stay in the family, but only 23% have a documented plan to do so.”
Here are ten – (10) guidelines for creating an effective family business succession plan:
- Start Early:
Succession planning should begin long before retirement nears — ideally, at least five – (5) to ten- (10) years in advance. The earlier you start, the more options and flexibility you have, and the better the outcome.
Early planning gives the family the time necessary to:
- Identify and prepare potential successors;
- Align business and family expectations; and
- Navigate sensitive conversations and issues with clarity and care.
According to a KPMG Enterprise & Family Business Report, businesses with formal succession plans are 2x more likely to retain family ownership over generations.
- Define the Business’ Vision and Long-Term Goals:
Get clarity about the future of the business. For example:
- Will it remain family-owned ?
- Will it be sold, merged, become an ESOP, or be passed on to a specific family member ?
- What legacy should it leave behind ?
Aligning on a shared vision helps guide decision-making and ensures that the plan supports both the family’s values and business’ objectives.
- Identify and Develop Future Leaders:
Evaluate which family members are interested in and capable of taking on leadership roles. Don’t assume that leadership should automatically pass to the oldest child. Instead, consider each family member’s:
- Skills, experience, management, and leadership qualities;
- Commitment to the business; and
- Credibility with partners, employees, vendors, clients, family members, and other stakeholders.
Once the family member(s) is/are selected, identify the training gap and begin training and mentoring these individuals, by assigning them increasing levels of responsibility, getting them any outside training that might be needed, and/or involving them in special projects and strategic decisions.
- Separate Ownership from Management:
A successful succession plan distinguishes between ownership and day-to-day management. Some family members may become shareholders without taking an active role in the operations. A clear governance structure — such as a board of directors or a family council — can help manage these distinctions and prevent conflicts.
- Establish Clear Roles and Decision-Making Processes:
Define job descriptions, reporting relationships, and decision-making authority. Create systems that promote accountability and transparency, especially where family relationships could otherwise blur professional boundaries.
- Communicate Openly and Often:
Succession can be a sensitive, stressful, and emotional topic. Use open, honest, and structured conversations to:
- Discuss roles, expectations, and timelines;
- Address concerns and aspirations; and
- Build trust and buy-in from all stakeholders.
Regular family meetings and the use of outside facilitators or advisors can help manage conflicts between employees, shareholders, and family members and keep communication productive.
- Create Detailed Legal and Financial Plans for the Family:
Collaborate with attorneys and financial advisors to:
- Update estate plans and wills;
- Transfer ownership or shares tax-efficiently;
- Draft or update buy-sell agreements; and
- Define compensation and benefit structures.
This legal framework ensures that the succession plan is enforceable and aligns with both family’s and business’ interests.
- Test, Periodically Review, and Adjust the Family’s Business Succession Plan As Needed:
A succession plan is not static. For example, it must adjust to family, business, industry, economic, and tax changes. Exiting leaders and their advisors should pilot the transition process by giving the successor temporary control and the lead on major initiatives and use this time to observe, coach, and refine the plan.
- Formalize the Transition Timeline:
Establish a timeline for the transition, including key milestones such as:
- Title transfers;
- Retirement of the outgoing leader; and
- Implementation of the new leader’s vision.
Establishing a timeline for transition to the successor helps manage expectations and ensure a smooth handoff.
- Celebrate the Transition:
Leadership succession is a major milestone for any family business. Mark the occasion with a formal event or announcement that honors the outgoing leader’s legacy, and builds confidence in the new generation.
Final Thoughts:
According to the Family Firm Institute, 60% of family business failures are due to problems with communications and trust within the family. Creating a family business succession plan takes time, transparency, and a willingness to confront difficult issues, but the payoff is worth it as it can result in a stronger, more resilient business, a united family, and a legacy that can last for generations. As outlined above, by treating succession as a process rather than a moment, families can build continuity that honors the past while embracing the future.
Did you like the content in this article ? For more information about business exit and succession planning, the author has posted his entire series of business exit and succession planning articles on the media page of his website at www.greaterprairiebusinessconsulting.com.
About Greater Prairie Business Consulting, Inc.:
Greater Prairie Business Consulting, Inc. is an award-winning, national consulting practice serving entrepreneurs, small to mid-sized privately held and family-owned businesses and middle-market companies of any type with revenues between $1 million and $250 million. The firm helps small, mid-sized, and middle market companies maximize their performance and exit.
Greater Prairie Business Consulting, Inc. can be reached by calling 1-800-828-7585 or e-mailing info@gpbusinesssolutions.com.
About the Author:
James J. Talerico, Jr. is an award-winning author, blogger, speaker, and nationally recognized small to mid-sized (SMB) business expert.
With more than thirty- (30) years of diversified business experience, Jim has a solid track record and an A+ BBB rating helping thousands of business owners across the US and in Canada tackle tough business problems to improve the performance of their organizations.
His client success stories have been highlighted in the Wall St. Journal, Dallas Business Journal, Chicago Daily Herald, and on MSNBC’s Your Business. He was named “Texas Business Consulting CEO of the Year,” by CEO Today Magazine, identified as a “Top 10 Management Consulting Entrepreneur to Watch” by Entrepreneur Magazine, was listed among the “10 Most Visionary Companies to Watch” by The Inc. Magazine, and has also been ranked among the “Top Small Business Consultants” followed on Twitter.
For more than half a decade, Jim was a regular guest on “The Price of Business,” a nationally syndicated radio program on Bloomberg Talk Radio and has also appeared as a subject matter expert on many FOX Radio interviews. He is a regular contributor to several blog sites and has frequently been quoted in publications like the New York Times, Dallas Morning News, Philadelphia Inquirer, The Entrepreneur’s Review, The International Exit Planning Association’s blog site, and on INC.com, in addition to numerous, other industry publications, radio broadcasts, business books, and Internet media.
Jim received a Gold “Stevie Award” for “Thought Leader of the Year,” a Gold “Stevie Award” for “Media Hero of the Year During Covid” and a Bronze “Stevie Award” for “Best Entrepreneur” in the Category of “Business and Professional Services” at the American Business Awards ® in New York City. The competition received more than 3,700 nominations and is the premier accolade for business excellence in the US honoring organizations of all sizes and industries. Jim also received an “Outstanding Leadership Award” at the Money 2.0 Conference for his contributions to the financial services industry.
Jim is the author of “8 Steps to Becoming an ETHICS FOCUSED ORGANIZATION,™” a small business certification program that utilizes a unique eight – (8) step approach for strengthening ethics in any organization. The certification program won the Better Business Bureau’s “Torch Award for Ethics” for the North – Central Texas Region, the International Better Business Bureau’s “ Torch Award for Ethics,” and a Gold “Stevie Award” for “Ethics in Sales” at the International Sales & Customer Service Stevie Awards®. Participants who complete this certification program are eligible to receive eight – (8) continuing education units from the University of Texas’ Division of Enterprise Development.
Jim received his Certified Business Exit Consultant (CBEC)® designation from The International Exit Planning Association (IEPA) to help entrepreneurs, small business owners, family businesses, and middle market companies maximize their business exit, and he received his certification in succession planning from the ASPE.
Jim is also a Certified Management Consultant (CMC)® and an active member of the Institute of Management Consultants. The Certified Management Consultant® mark is awarded by the Institute of Management Consultants USA (IMC USA) and represents evidence of the highest standards of consulting, a commitment to continuous development, and an adherence to the ethical canons of the profession. Less than 1% of all consultants in the world are Certified Management Consultants (CMC.)®
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