Succession Fireside Chat: What is the best way to prepare the next generation?

You may intend to pass your family business to the next generation — but are wondering where to begin. Your business is as unique as each member of your family and your successors will need the right knowledge and skills to ensure a smooth transition. What is the best way to prepare the next generation to take on the family business?

In the fourth episode of our Succession Fireside Chat series, MNP’s Lynne Fisher, Steve Ivacko, and Eben Louw discuss how to structure your approach to transitioning your business and how to prepare successors who may not have been previously involved in its operations.

How to structure your succession approach

While children of family business owners may feel prepared to take over the business in an informal setting, this may not always be enough to achieve a successful transition of ownership. It is necessary to take a structured approach toward transitioning your business to equip your successors with the skills and support they need to run the business effectively.

These best practices can help you structure your approach to succession and help your family members navigate the path forward with confidence:

Assess skills and address knowledge gaps

Many business owners assume the next generation will absorb knowledge from watching them run the family business — and are surprised to learn that may not be enough to ensure a successful takeover. It is important to assess what your successor knows and where there may be gaps in their knowledge before you begin the succession process.

An assessment can be an informal interview between family members, or it can be performed by a third party. After you have identified which skills need further development, you can put together an education plan to ensure your successor gains the knowledge they need to run the business successfully.

Build a decision-making system

Your family has its own system to make decisions and resolve conflicts — however, the system you use may not carry over efficiently into the family business. Your company has different priorities and different ways of operating, and it is important to separate its decision-making system from how your family makes decisions.

Clarify who has the knowledge and experience to make decisions in your family business and how decisions are made. A clearly defined decision-making system will help your successor navigate conflicts and reduce uncertainty.

Create a family council

Some members of your family may not be directly involved in your business — but still be invested in its success. Creating a family council can help these family members understand how the business operates, how decisions are made, and keep them updated on its current situation.

Family councils can also provide a forum for ongoing education about the business itself, and the business of the family — such as tax planning, legal considerations, and charitable giving. Furthermore, they can help provide clarity around the compensation other family members may receive from the business and reduce potential conflicts. This helps to support a smooth transition in ownership by ensuring everyone in your family is aware of your decisions and ideally on board with them.

Take the next steps

Investing in a structured approach toward the succession process will not only equip your successors to make good business decisions. It will also mitigate risks such as employees or customers leaving your business because they are uncertain of its direction. An approach that prioritizes assessing skills, building a decision-making system, and creating a family council will reduce uncertainty and give the next generation the knowledge they need to navigate the path forward with confidence.

Building the right succession strategy requires clear goals and thorough planning. If you need support on your succession journey, contact a member of MNP’s Succession Services team. We have the experience to help you build a succession strategy to capitalize on what you’ve created.