Key Takeaways of the North America Family Business Report 2023
Do you have a succession plan in place for your family business? If you answered no, you’re not alone. However, to protect your family business in the future, it’s a good idea to create one.
In the 2023 North America Family Business Report, the majority of surveyed business owners stated that they do not have a written succession plan in place. The report also brought up other challenges family businesses face, such as internal communication.
If you mix communication issues within the family with a lack of a succession plan, you could be looking at problems in the future. The good news is that with advice from specialists like your EWP advisor and some advance planning, these issues can be ironed out now before it’s too late.
In this article, we’ll take a deeper dive into the report, talk about why succession planning is critical, the role of communication in your family business, and — most importantly — the steps you can take right now to get a succession plan in place.
Key Findings of the Report
For this year's report, more than 100 family businesses with over $340 million in average annual revenue were surveyed. Overall, the report found that while these surveyed families worry about aspects of future leadership, very few have taken strong action to plan for it.
In fact, the study showed that 29% of families actively avoid the topic so they don’t have to discuss potentially sensitive and uncomfortable topics with their loved ones.
Formal planning and documentation were also highlighted as an issue, with 61% of respondents stating they do not have a written, formal succession plan in place. 44% responded that they still need to develop a succession plan or have no plan at all, and 16% stated they are currently relying on informal plans.
The lack of Next Gens that are either interested or qualified enough to take over the leadership reins was also cited as a concern for 22% of respondents. Another 21% believe the family has not invested enough time into succession planning.
These are all issues that need attention, especially as most want to maintain ownership within the family with 91% responding that they have no plans to sell stakes in the family business.
Why is Succession Planning Necessary?
A succession plan is a roadmap for the future that allows you to identify the right people for leadership roles in your business well before you need to promote them to these positions.
For instance, you may have someone in mind to succeed you from the next generation, such as a child or grandchild. This person may have potential but does not yet have the right expertise. With the correct plan in place and the willingness of both parties, you could train and develop this individual. Then, when the time comes, they would be ready to assume their new role and the transition of leadership would be smooth and positive for the business.
Having a good succession plan in place could mean the difference between your business surviving and thriving through a leadership change or completely floundering. It can help protect the family legacy and wealth, and avoid any surprises within the family when the time comes to hand over leadership or ownership. This can, in turn, help strengthen familial bonds.
When someone moves on from leading a company, the wider organization needs to know the company is in good hands. This can only be achieved when the transition of leadership has been planned for and all key stakeholders have been informed about the changes and are on board.
The confidence and calm a succession plan can provide to both the family and other stakeholders is especially important considering the current economy. With the global economy continuing to slow and inflation having hit hard over the last few years, companies that are not prepared for the future and are not unified, are more likely to suffer.
The Critical Role of Communication
Clear, open communication is a fundamental pillar of a good succession plan. This is especially true in family businesses where there can be entrenched family dynamics at play. In these kinds of businesses, the topic of leadership and succession can be highly emotive.
The report shows communication can often break down when topics such as the appointment of roles and division of responsibilities among family members are discussed. Respondents also cited cases where the patriarch or matriarch doesn’t want to relinquish control as a roadblock to productive conversations.
Good communication allows you to resolve any family conflicts that can arise during succession-planning conversations and decide together who is best to lead the business in the future. This will include discussing the family’s vision for the business as a whole, the core values you all want to carry on, and the future goals and priorities you have for the business.
We understand that conversations around succession are not always easy to have and often do not come naturally. At Entrust Wealth Partners, we are always on hand to help you navigate the succession planning process and the sometimes difficult conversations that come along with it.
Succession planning is essential to safeguard the future of your business, and so too is having open communication channels within the family. This way, everyone is clear on the future plan for the business, and the steps they need to put in now to make that happen.
Succession planning however is not always simple, it not only requires extensive, open conversations, but it also requires analysis of many factors both professional and personal.
Your wealth advisor can help you through this planning and the necessary steps involved, as well as help to revise your plan periodically to make sure it stays up to date. Reach out to your Entrust Wealth Partners advisor to start building your succession plan today.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.
This material was prepared by Courtney Henry Consulting.