In our latest Q&A, David Filmer, head of the corporate team at Harrison Drury, offers some advice for family business owners and those family members looking to take over the reins.
What would be your first piece of advice to someone taking over the management of a family business from a previous generation?
Establish a succession plan. Many businesses lack such plans for two reasons: Either the older generation has not considered that one day they will need to step down from the business and transfer this to the next generation, or there is too much trust in the family that a formal plan is deemed unnecessary.
A good succession plan should be in place years before the transition, however if one is not in place now, it is never too late to consider the legal and financial issues and the impact such succession will have on the business. The longer you get to spend on succession planning, the smoother the transition process is likely to be.
What are the main, or most thorny issues that next generation family business managers need to deal with?
Dealing with conflict is a key issue for any business. It is important though to consider that when you add in long histories and family relationships, this can make the conflict potentially destabilising for both the family and the business. Because family members are involved, conflict can be more difficult to solve and can result in difficult endings.
Misunderstandings at home could also be brought to the office and vice versa. It is therefore important to have a clear dispute resolution plan in place, which can be quickly referred to in order to minimise the impact conflict has. This can be as simple as engaging a non-biased manager or member of staff to help resolve the conflict.
Is it important for the new managers to ‘put their stamp’ on the business? What are the benefits? And the risks?
Enthusiasm is a key ingredient for a business, but it is important that any new manager considers the needs and best interests of the business before introducing new ideas. One of the greatest challenges with implementing change is the uncertainty over how it will affect the business.
The older generation and long serving employees will understand what does and does not work for the business based on previous experience and provide a useful resource to brainstorm ideas.
Should the previous generation maintain an advisory role in the business after handing over the reins? Again, what are the benefits and the risks?
The majority of business transfers do not happen overnight and there tends to be a transition period whereby the older generation retains some involvement, often through minority shareholding or a consultancy role. This involvement not only allows the managers to benefit from the previous owner’s hands-on experience and knowledge, but allows the employees and clients of the business to remain confident that the business is in safe hands being guided by the older generation.
However, despite playing a key role in the transition, it is important that the older generation recognise that they no longer control the company, and that their role is an advisory one. This is difficult to achieve when dealing with parents and their children, and the importance of an agreement or plan detailing each individual’s role is even higher.
David Filmer is a director and head of the corporate team at Harrison Drury solicitors. To speak to David about any family business matter, contact him on 01772 258321.