Building your family business is a rewarding career, with many fantastic benefits. But, naturally, there will come a time when you begin thinking about stepping back from your business, transitioning out of your leadership role, and passing the reins to someone else.
It may be due to retirement, business growth, or a sales opportunity. Whatever your reason, this feeling of relinquishing control can be a frightening one. You’ve spent your life working in your business—can it successfully continue on without you at its helm?
Separating the personal from business
As a family business owner, often you are the business. Your name and your personality are what your clients know and trust.
We spoke with Martin Tobin, Specialist Family Business Adviser at Kin in the Game, about how to safely navigate a family business through a leadership transition and ensure that business continuity is maintained.
By nature, family businesses are built on the personal goodwill and expertise of its leadership. So when the business owner exits the business, their knowledge and relationships leave with them, Tobin explained. Without the correct planning in place, handing over the reins to a new owner—whether it’s your next generation or an external party—can be fraught.
“This is particularly important for business owners who ultimately plan to sell the business—a purchaser will only pay for things they can own, control, and replicate once the owner has cashed their cheque.”
A long-term personal client relationship doesn’t transfer along with a cheque.
Relinquishing control doesn’t mean losing control
The lynchpin to ensuring business continuity is to embed the business’ success formula in the necessary external elements prior to gradually extricating yourself from the business.
“It’s a cliché, but the validity of ‘working on, not in’ the business can’t be underestimated,” Tobin says.
It’s a process of professionalisation. By formalising all the necessary business elements, and embedding a professional structure into the business, this helps to create a resilient company whose leadership can be passed from one owner to the next.
This means taking the time to embed robust decision-making, manage client relationships and expectations, and document the necessary processes. It includes carefully selecting, and properly training and mentoring staff, developing resilient systems and processes, and putting in place regular, structured decision-making meetings.
Understanding your changing role
For a truly successful business transition, the retiring business owner must understand that their role is changing.
They’re no longer the “do-er”—they’re the teacher. Their new role is to consolidate their knowledge, their intimate understanding of their business process and key relationships, and instil this into the incoming leader. The role of the successor then is to listen, understand, and take this knowledge on board. They may be looking at the future growth of the business, and how to position it for market relevance and long-term profitability—but this can’t come without a thorough understanding of the processes and relationships that have delivered the business the success it currently enjoys.
Both parties have to trust each other. When undertaken with careful planning, honest communication, and mutual respect for the roles each party plays in the business, this relinquishing of control can be achieved successfully, and the exiting business owner can feel like they’re leaving the business in safe, capable hands.
“A simple test for whether this professionalisation process is properly underway,” Tobin says, “is whether the owner feels able to take a decent holiday every so often, and how the business copes when they do.”
Managing your business continuity plans
As a family business owner, it’s important to discuss your future business transition with a family business adviser, your financial adviser, and the necessary stakeholders early to ensure a seamless business transition.
Your family business adviser can work with you to develop a long-term plan to put the processes and structures in place for your business transition. You’ll gain peace of mind that your successor will continue to run the business to the same standards you’ve so strongly held, and that your business has the ability to continue on without you at its helm.
Your financial adviser will work with you to ensure your family’s finances are well-managed, so you feel comfortable when it comes to relinquishing control of the business.
And it’s best to do this before you’re forced to take a permanent holiday.
Director, Stephan Independent Advisory
Joe Stephan graduated in 2002 with a Bachelor of Business (Fin Plan) under the tutelage of his father (Program Leader of Financial Planning at RMIT University).
You will hear Joe bandy about the idea of “pure financial advice”, which is given objectively and focused around the needs of individual and not the internal needs of the business providing advice.
Joe is realising his vision every day through his Independent Advice Firm which he owns and operates with his brother James. Joe also spends a portion of his time teaching tomorrow’s Financial Planners at various Melbourne Universities including RMIT & LA Trobe.