So you are only 55 years old and still have plenty of time. You started or bought your company 20 years ago, or maybe you inherited it. You're in great shape and you certainly can't let go of the adrenaline rush of running your own business. However, now is the best time to start thinking about your succession.
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However, this does not mean that you stop working now, but business succession can take several years from your first thoughts to completion. Moreover, the sooner you think about it the easier it will be because you know you still have time. Here is what Luc Darbonne, fourth generation leader of Daregal, the world leader in herbs, says: "I think a leader needs to start working on his succession at 50, ahead of time. Then the emotional charge becomes very strong." He shared his thoughts with us in 2007 and had already started a few years ago. It was only in 2013 that his son Charles was, formally, installed to succeed him.

Assuming you are the sole owner, you probably have many options in mind. If other family members are involved in the business, as owners or employees, or are preparing to enter the business, it's critical to have an open discussion with them about whether the business should remain in the family. Business strategy, funding, family talents and commitment are some of the factors that will come "into play" in this decision.

Selling the business

It sounds like an easy option, however, you may have preferences regarding the type of investor who will take over the business. You might reflect on the question: who or which organisation would be the best owner of this business?

One of your efforts in the coming years will be to ensure that your company survives without you, to 'personalise' it, mainly by creating a stronger board of directors. Which will also/also be able to help you in all the steps, necessary to prepare the business and reach a 'good sale'.

You can sell the business to your managers and staff. It has the benefit of bringing in new owners who already know and are committed to the business. However, while it is important to ensure that you are as rigorous in this process as you would be with an outside investor - and that you don't lose valuable employees in the process due to failed negotiations. You can also sell to one or more key managers and/or use an employee share ownership plan, making all employees partial owners of the company.

Passing on/transferring the business to the family

This is an option for some businesses that have already gone through several generations of family succession. These individuals may feel like Charles Darbonne, 5th generation of a family business: "A family business is not entirely yours. It doesn't belong to you. You're here to pass on the baton". Yet family succession is not an obvious choice for many entrepreneurs. Some prefer to pass on the baton directly; others - like Bill Gates - want their children to develop their own professional lives.

The debate within the family is paramount to find out if any family members (children of the leader, nephew or niece) are interested and have the imperative skills to take over the business. Such a succession will require many years to be effective, as the following questions need to be pondered:

  • Who will lead the business? Is it family or not? How can we make sure we have the best leadership?
  • When and in what form will ownership be transferred?
  • How will the governace be organised in the new tenure configuration?
  • How to ensure that conflicts do not arise?

Family succession is a long process, but it can bring great satisfaction to everyone when approached properly. A family business is a meaningful project that family members can identify with, and the family can bring commitment and a long-term vision to the business.

Additional considerations

While you should not underestimate the efforts that family succession may require, you should also not underestimate the challenges that wealth can bring if you decide to sell the business: managing wealth is very different from running a business; you will need to create new meaning (including philanthropy or new ventures) and your children's (or grandchildren's) education will be impacted by the new environment.

We have already mentioned several factors to be considered when planning/preparing for succession in business: the needs of the business, the commitment and talents of the family, the future needs of the owner etc. Tax issues will also have a bearing on this decision, but we would argue that these should not be the deciding factor.

Either way, it's best to get started: you'll have time to consider the different options, discuss them with your family and prepare for the change!

This article is adapted from a blog written by Christine Blondel for KPMG

[1] Source : Christine Blondel and Anne Dumas, 2008, L'Entreprise Familiale sauvera-t-elle le capitalisme, Editions Autrement, Paris

[2] Same source (Blondel and Dumas, 2008)

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Published in 
19/2/2020
 in the area of 
Finance & Economics

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