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Family Business Governance Knowledge

 

The Time For Planning Is Now

Once, Russ Allred said: Picture in your mind two impassioned octopuses, their tentacles intertwined, sucking, grabbing and happy.

To the onlooker, this salacious scene might appear violent, unnatural, or even nauseating, but to the octopuses it is merely a fact of life. Many consultants, accountants and the like look at family businesses in much the same way.

Their initial reaction and advice is to separate the family and the business before they get hurt. Despite their good intentions, the separation normally yields sushi before harmony.

Every family business owner has heard someone say, "I could never work with my relatives. I don't know how you do it." The statistics shows a mixed view. Some do it just fine - other have problems.

Ninety percent of businesses around the world are family-owned, and one-third of the largest multinationals are either family-owned or family-controlled. Standard & Poors reports that family businesses outperform other stocks across the board. Yet only 30 percent of family-run companies today succeed into the second generation. An even smaller 15 percent survive into the third.

So what is the problem? There are many problems in any business, but family business problems can be summarized into four: Succession, Perspective, Function and Equity. Succession is one of the issues. This arises out of a lack of an orderly succession plan.

     It is a daily miracle that there are any owner-managed firms left in the world with so few making plans for their own continuity. The toughest thing for the entrepreneur to realize is that time is constantly running out.  Most owners don't plan because they don't think they are ever going to retire or die.     

Owners should begin planning while they are still healthy and active in their enterprises.  If one waits until the age 65, it would be even more difficult to do many of the jobs associated with succession planning, such as teaching, explaining how the business operates and passing on the spirit and vision with which it was founded

The time to plan is between the ages of 55 and 65.  And the handing over of the baton -- the plan itself -- should be a process, rather than a single event.  A three-to-five year plan as a minimum is recommended while a five to 10 year "reach-out" is more recommended. The more time allotted for planning, the better the outcome will be.     

Adequate planning time enables the owners to test potential successors in different roles and evaluate their maturity, commitment, business acumen and leadership abilities.  If you've already anointed your successor, adequate planning time allows that individual to build up expertise so the passage transpires so gracefully that no one in the company even feels it happen.

 

 

 

 

In this Knowledge Area  you will find a list of useful published knowledge and insights from GEGN about Family Business Governance. You can browse through the material and choose knowledge according to your area of interest. You can also go to our Mantrich PLAN G FORUM to learn about our Family Business Succession Tools whilst sharing ideas and obtaining information from other like minded family businesses.

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"The only thing more expensive than education is ignorance."
Benjamin Franklin 1706-1790

 

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