4 Steps To a Successful Family Business Transition

We’ve all heard the horror stories about family business transfers that create irreparable damage—parents estranged from children, children at war with siblings, and standoffs that endure for generations. It doesn’t have to be this way! We’ve worked with many families who have moved through business transitions and kept their relationships healthy. While every family is unique, we recommend that leaders take steps to a successful family business transition.

The Foundation for a Successful Transition

The transition of a business to an adult child may be more complicated than one to a non-family member, but it need not be significantly more difficult if you are:

Clear about your own objectives
Open to new possibilities and resolutions
Willing to communicate honestly and frequently

These attitudes equip you to take four steps to maximize the odds of a successful family business transfer.

Step 1: Face Your Fears

We have met so many business owners who would like nothing more than to see a child (or children) take over their companies when they leave. Many, however, are frozen in place by the fear that their fondest dream could turn into their worst nightmare. There isn’t space here for an exhaustive list of all the issues owners worry about, but here are the top four in no particular order:

Naming one child as owner will alienate his/her siblings as well as the other parent.
Naming all children as owners will create leadership by committee (something they themselves would never have tolerated).
The child (children) does not have the drive or skills necessary to run the business.
The child does not have enough cash to pay the amount the owner wants and/or needs for business equity.

All of these fears might be absolutely rational. Or they may not. Facing fears and understanding their source help to create dialog and movement–getting you unstuck. If you find that a fear is valid, don’t let it hold you back. You’re ready to move on to step two!

Step 2: Create Clarity

Determining what you want the transfer of your business to accomplish is the next step to transition success. Think about your objectives for a moment: What do you want the transition to accomplish for you, your family, your successor, and your business? Is maintaining (or even strengthening) important relationships one of your objectives? It is for most owners. Can you describe your life after you leave your business? Which goals or values will you not sacrifice?

Designing a successful transition of a family business is impossible unless you know what “success” means to you! When you put your goals in writing, you gain clarity which prepares you to communicate effectively with others.

Step 3: Test Your Assumptions

We all make assumptions. Some—but not all—are accurate. The trick is to figure out which are correct, and which are not. We recommend that owners adopt an attitude of curiosity so they can test their assumptions.

For example, you may believe that your child does not have the skills to run your business. Why? Have you observed their behavior, or did someone suggest that they don’t have what it takes? Must your child have the same skills you brought to leadership? Most importantly, does your child have the potential to learn to lead and are you capable of teaching them?

If you assume that your child will not run the company the way you do, you are correct. No successor—whether related to you or not—will run your business just as you do.

If your daughter is active in your business and hasn’t said, in so many words, “Dad, I want all of this to be mine someday!” do you assume that she isn’t interested in ownership? Have you asked her whether she wants ownership? Have you talked about how you will teach her what you know about business and over what time period? Have you told her that you will help her build a team around her strengths as you built a team around yours?

Step 4: Build Trust Through Honest Communication

According to playwright George Bernard Shaw, “The single biggest problem in communication is the illusion that it has happened.”

Communicating the right information with the right parties, at the right times in the right ways builds trust. Trust, and lots of it, will be necessary as you prepare your successor to take over leadership and as your successor grows into your role. Great communication makes people feel heard and valued because they are. (If you’d like more tips for communicating effectively about a business transition, read our blog post: Five Communication Tips for Owners Contemplating Business Transitions.)