Many family businesses leave succession until the last possible moment. But doing so can cost the business dearly in terms of lost revenue. It can even cause it to collapse. I’ve learnt from experience that businesses which plan succession as part of their overall governance strategy are more successful and last longer.
As research from the Netherlands has shown, handling succession badly can cost a business billions in revenue. Due to a failed transfer, yearly revenues can fall by anything between €2.4 billion and €3.2 billion. Worse still, 25% of those businesses that handled succession badly failed altogether.
The research also found that the average age at which one generation hands over to the next is 62. That might seem young, especially as many family businesses are run by septuagenarians, or even octogenarians.
Of course, when some family business leaders step down, they carry on in the background, remaining in charge even after the next generation has officially taken over. Research has shown that, of those who say they have stepped down, 32% continue to influence key decisions. This can cause the business to fare less well than when succession is handled in a professional and timely manner.
Succession can be a very emotive issue. But family businesses need to address it effectively if they are to avoid serious problems. Here are some points to bear in mind to help you plan for succession:
- It’s crucial to integrate succession into both business governance and family governance structures.
- Most successions in family businesses are planned over a four- to five-year period. That might be long enough for the technical process, but it is too short to consider all the emotional and strategic aspects. Succession should be integrated into the overall business strategy.
- There needs to be a conversation with the whole business about succession. It shouldn’t be an item kept low on the agenda, to be discussed when convenient.
If you follow these guidelines, they can help you avoid future succession problems. But if you don’t prepare for succession, the cost to the business could be huge.
Arjen Brussé, Partner, Family Business and Strategic Growth Markets Leader, Belgium and the Netherlands, EY