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Family businesses serve as keystones for various industries, especially in Europe. In fact, the European Commission stated that more than 60 percent of companies in Europe consist of family businesses. However, only a small percent of family-owned enterprises survive a family business succession and make it through the second generation. An even smaller percentage survives through the third-generation succession.

In 2018, family businesses employed more than half of all employees in the private sector according to a report by the IFB Research Foundation. This figure accounts for more than 14.2 million employees. The role of these companies in the economy makes it important for family business leaders to find the support they need during business succession. Learn more about the important things to know when preparing a family business for succession.

The Challenges of Business Succession

Before planning a business succession, it’s best to learn the problems you might face in the process. These include conflicting interests, unpreparedness, weak business health, and lack of external opinion.

First, when your objectives for the business during exit do not align with your successor’s aims upon entry, you get a massive problem. The best strategy for your plans might not be the best entry point for them. Second, when you failed to prepare your managers and employees for a transition, your operations could take a drastic hit. This shows how important it is to strengthen your business health to survive a succession. Lastly, the lack of external perspective on how to address business issues could be a big mistake. Getting a team of advisors or independent consulting services like Damalion offers could broaden your options. Damalion helps leaders in managing their business legacies. Some of these services include adaptive corporate structuring and designing transfer strategies. These external options could hold the key to intergenerational succession planning for your business.

Transition Challenges Particular to Family Businesses

Aside from the general problems met in business succession, a family business also brings in unique considerations. For instance, family values need to be integrated into any succession plan. Family businesses tend to have ethical codes that govern the way they interact with employees, clients, and their relations with communities.

There are two ways that keeping strictly into these ethics can become a problem. First, when a crisis like the COVID-19 pandemic hits, strong emotional attachment to clients and employees might affect business owners in taking the best strategies. Moreover, with developing technologies in this age, families might not catch up quickly when they cling to the old business customs traditions. While this poses a challenge, these ethical standards and values can also give stability and security in times of succession. By keeping the same ethics and culture to the next generation, employees feel more secure with their position.

Planning a Family Business Succession

With these challenges in mind, you can create a business transition plan that will guide you through the process. Planning for the business transition years ahead of time gives you a lot of control over the process. First, having a lot of time allows you to consider which strategy would fit your objectives more. Second, you get to assess the trend in the market over a long period. This tells you where to improve your business to increase the chances of having a smooth transition.

Additionally, an early and effective business succession plan lets you assemble your team. You can take your time looking for advisors that tackle issues in a multi-disciplinary approach. To avoid the mistake of sourcing all strategic opinions from within the family, you can reach out to independent for objective views on your plans. Independent consulting firms like Damalion can give you the tools and strategies you need to make your vision live. A transition period could also be the perfect time to evaluate how the family business can integrate recent trends in digital technology. Lastly, don’t forget to set up the stage for the business operations after the transition.

Dealing with Post-Transition Execution

When the business succession planning and execution goes well, you know you have done the best for your business during exit. However, keep in mind that a smooth transition does not guarantee excellent performance in the aftermath. This stage requires patient training and coaching strategies that will make sure the business is on the way to sustainable growth.

It could cost the business a lot when leaders stay away from diverse and fresh opinions when creating plans and strategies. Learn more about how Damalion can support and expand your options during a family business succession here.