Taking Over The Family Business in 2020: What to Know
It’s common for family businesses to get passed down through generations. However, if you’re taking one over this year, there are some unique considerations to keep in mind. Here are some tips that can help you understand the pros and cons of engaging in 2020 family business succession.
Taking Over The Family Business in 2020: What to Know
1. Assess Whether the Business Aligns With Current Interests
One of the positive sides of taking over a family business is that it may provide you with the opportunity to profit from something you already know you enjoy. Without that chance, you may embark on an unfamiliar career path and end up realizing it is not right for you.
For example, Jason Baide will purchase Montana’s Gem Gallery jewelry business from his father, Don, who is retiring soon. Jason said, “I grew up working here at the shop, designing and creating. I love what I do, and I’m very excited to take over the whole store.”
Jason has a talent for the business as well as a passion. He began entering jewelry competitions as a college sophomore, and he worked at the store throughout his life. He knows what to expect, and that should make the transition easier.
Think about your current life situation and whether getting involved with the business supports it. Suppose you have little or no interest in the company and prefer to do something completely different with your life. In that case, it’s unlikely that your opinion would drastically change once you take on more responsibilities.
You could even end up feeling trapped and obligated to stay once taking over, fearing that your departure would destabilize the business. However, there may be other options that do not entail company ownership. For example, if you love the marketing industry and have a background in it, you may prefer to accept a marketing leadership role.
2. Understand How COVID-19 Could Continue to Impact Operations
The COVID-19 pandemic dominated the news cycle in 2020. It also caused some people to get involved in family businesses sooner than they’d planned. As many areas around the world went into lockdowns, officials often advised that older adults stay home as much as possible — especially if they had underlying conditions that put them at an even higher risk than age alone.
Since many longtime business owners are older, they suddenly found themselves unable to conduct operations as they had for years or decades prior. The “new normal” forced by the novel coronavirus featured the reality that many people relied on online platforms to connect and get work done from a distance.
As the pandemic continued, it became steadily apparent that it could be a long while before things returned to how they once were. Thus, some leaders felt now was the time to put their retirement and succession plans into action.
In other cases, some of the younger and more tech-savvy members of the family that got called upon to ease the strain caused by the pandemic assumed more responsibilities. They felt eager for those transitions to happen, even if older leaders were still unsure.
Realize that the pandemic will likely affect business operations and life for the foreseeable future. Even if a vaccine gets approved, it will take a while to distribute. Plus, it may not necessarily stop virus transmission, even if it does protect the vaccinated against severe complications. Ponder how the novel coronavirus impacts business now and whether it may exacerbate the stress you and others in the family already feel about a transition of ownership.
3. Set Realistic Timelines Associated With Inheriting or Running a Company
Perhaps you’re in a situation where you’re inheriting a company after a relative’s passing. In that case, you may have a clear idea of what it takes to run the business but are less sure about the legal specifics that must occur before you assume ownership.
The probate process often lasts at least a year, even in relatively straightforward situations. If you add complications like lawsuits over contested wills, the timeline could stretch much further. If a person dies without a will — or a probate court deems the document invalid — their personal and work-related property gets transferred according to state laws that vary by location. These stipulations emphasize why you must set feasible schedules when inheriting a business.
However, the necessity of creating realistic timelines also applies to the near- and far-term plans for the business. One recommendation is the “zoom out to zoom in” approach. Business leaders can use it during their regular planning meetings. It involves assessing what the market or industry will look like in 10-20 years. This method stops people from fixating on the here and now without looking to the horizon.
In one survey of global family businesses, 71% of respondents reported only making plans for two to five years. Another 6% admitted to only taking the next year into account when planning.
Deciding that you will look at a broader timeline could ensure that your business can cause favorable disruptions in the industry and not be victimized by them. It’s also more challenging to see the effects of exponential changes by only focusing on day-to-day operations. Moreover, zooming out when making plans allows company leaders to get equipped for future developments rather than getting caught off-guard and scrambling to stay competitive.
4. Learn About the Potential Challenges You Face
If you’re in a position where you’ve observed the leaders of your family business for years, you likely have a good idea of the obstacles that may stand in your way at times. We’ve already looked at the potential implications of the COVID-19 crisis. Even so, it’s smart to get a broader perspective when getting prepared for what’s ahead.
A 2020 survey of family businesses in Franklin County, Ohio, offers some perspective. More than 48% of those polled reported that finding qualified workers was their biggest challenge in 2020. Concerns about securing and maintaining clients came in second place, with just under 21% of people mentioning those as top combined challenges. Despite the limited scope of that research, it gives you a glimpse into some possible difficulties you’ll need to overcome.
Examine things like the economy, the current demand for the business and how it could change with a leadership transition. Perhaps frequent customers often say that the current owner and their good-natured, friendly personality are the main reasons they have stayed loyal to the business when less-expensive competitors exist.
You may then struggle to get those people to accept a change in leadership and welcome you warmly. However, if they already see you involved in the business, it’s not such a big obstacle.
5. Tackle Family Tensions Without Delay
One of the potential downsides of involvement with your family’s business is that you may immediately need to deal with interpersonal strife that could derail the company if not addressed. That means you may deal with negative emotions from others that may not be as apparent — or show up at all — if you’re not related to some of the other workers and leaders.
There is a range of family-related issues that could crop up and should not be ignored. For example, sibling rivalry and entitlement could both pose difficulties associated with successions. Consider a situation where the oldest male child in a family feels entitled to the company because the father who currently runs it has always viewed him as a favorite. However, he may be substantially less qualified and skilled than other family members.
Difficulties can also arise associated with spousal employment. Perhaps the company permitted it for years with no issues. Things could suddenly change if a couple goes through a bitter divorce while they are both in leadership roles at the family business. Some people have trouble keeping their work and personal lives separate, which can diminish their abilities to steer the company effectively.
Besides staying abreast of familial issues like those above, think about asking current leaders in the company what they wish they’d known before assuming their roles. What would they like to ensure you know before doing the same? You can also avoid many heated family disagreements by relying on neutral advisors to give guidance.
6. Stay Open to a Gradual Transition
The results of an October 2020 survey found that 57% of wealth originators have concerns about younger generations running the business. Many of them worry that all they have spent years to build could be ruined due to a few poor or haphazard choices by family members who perhaps were not as well-equipped to lead as it first seemed.
That’s why a gradual transition of power could work well for everyone involved. As it helps the successor become more self-confident, the person relinquishing the leadership sees that they have what it takes to make the company remain a success.
Nike Anani is an expert in building strong family enterprises. She proposes a scenario that acts like a trial run before the transition happens. “Allow the successor to have a teaser project, perhaps with their siblings, where they can demonstrate their ability to work professionally as partners and their joint commitment to succeed. This allows responsibility to be given in a controlled way, as responsibility should be earned, not granted,” she advises.
This setup also has other benefits for the successor by allowing them to think about possible delegation specifics once they assume full responsibility. For example, owning a business does not mean you also must take over most of the duties associated with running it. The better solution may be to hire competent leaders. Alternatively, you could promote from within. Taking that approach could make it easier to ensure that the people you choose align with the company culture.
Challenges and Rewards Await
Taking over a family business invariably poses obstacles. Additionally, the potential hardships associated with this year are arguably more prevalent than usual due to COVID-19 and the related effects on public life and the economy.
As you think about those difficulties and whether you can face them — or even want to attempt it — don’t overlook the positive sides of family business involvement. Many people who do it feel tremendously honored to carry on the legacies of their older relatives. They are also excited to take their more youthful perspectives and apply them to strategies that could grow the business soon and into the future.
For example, it probably never crossed the mind of a 75-year-old business owner to consider reaching more people via TikTok and Instagram. However, his 32-year-old daughter is probably more well-versed in the world of social media. She may want to apply her tech-savvy mindset to business opportunities after assuming leadership.
Some people conclude that family business succession is not the right path for them. If you make that decision, there’s no need for guilt and shame.
Use these suggestions to participate in a thought-provoking process that solidifies your role — or lack thereof — in the family business. Taking the time to weigh the pros and cons carefully will help you reach a more self-assured stance.