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Running in the family: succession planning remains a thorny issue for many family businesses. But the earlier the planning starts, the easier it's likely to be.

Keeping a business in the family is just as difficult as keeping family in a business. When it comes to succession, it is not as simple as handing down an heirloom to the eldest son. The founder must decide who should walk in his or her shoes. Waiting too long to discover that there is no good internal candidate intimately acquainted with a company's culture, and prepared to meet its goals and needs, can be costly.

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Unfortunately, a lot of family businesses don't recognize this as a serious issue. They worry more about the tax issues involved in the process. But with their primary focus on day-to-day matters, and lack of resources for formal planning, they are forgetting critically important steps in the management of their business affairs.

Family businesses make up 70% of the Canadian economy, with sales of over $1.3 trillion. The statistics for successfully passing family businesses from one generation to the next are pretty grim. Only three out of ten will continue as a family enterprise into the second generation, and by the third generation, merely one will survive the transfer of power.

This is a worldwide problem, and is compounded by the demographics of the baby boomer population, who are now at the age where they are thinking of passing their businesses on.

"This is a management process and decision that they have never trained for, and they only do it once in their lifetime and frankly, it's not being done well," insists John Fast, co-founder and executive director of the Centre for Family Business at the University of Waterloo.

Succession planning is not a short-term process, nor a simple one. There are usually no absolutes, no black and white--each case has a unique set of circumstances. It is a process that requires discussion, information gathering, evaluation, research, knowledge, and creativity. Succeeding at succession, no matter how arduous it may be, requires tough decisions and an unwavering commitment to planning.

The Site of the Green offers a useful, if simple, example. It is a family owned and operated china and gift store in Flamborough, Ontario. Originally opened as an indoor garden centre and gift shop in 1976, Ian and Linda Campbell successfully handed the business over to their two daughters in 2000. Katie joined the store full-time in 1993, and Laura in 1994. The business wasn't built in a day and retirement came gradually as well. The Campbells hadn't counted on retiring so early, but their daughters showed an interest in the business, and proved adept at it.

"Having a family business was a great way to raise a family," says Ian Campbell. The Campbell daughters spent their early years helping, watching and, as it turns out, learning the business.

Dr. Peter Hausdorf, an industrial psychologist at the University of Guelph, says that this is a wise approach to take. Letting children spend time running the business under low-risk conditions while the present owner is still in the background makes for a smoother takeover.

The daughters now run two stores. Katie runs the daily operations, ordering and staffing; Laura tackles the expanding office duties, appraisals, and mail orders.

When Ian Campbell started his family business, he never intended his daughters to succeed him. "The store was a way for us to make a living. And I wanted a business of my own," he remarks. If the family business notion should tempt another set of Campbells, he foresees new challenges with the next generation.

"As you go on in business it keeps getting harder. The first generation builds the business, watching every penny, the second expands it to make the business better and keep it growing, but with the third, the work ethic is not there, they are handed everything," he concludes.

Often though, the personal and family-related issues are the thorniest. When parents have established a thriving business, it's natural to want some or all of their children to continue the business after them. Choosing the right child or children to manage and control the family business is often an agonizing decision. And though there may be a strong family bond, that doesn't guarantee a uniform vision for the family concern.

The best prescription for succession is based on merit--serving the needs of the business, not the needs of the owner or the family. Only those qualified should be considered to control and manage, which might mean bringing in outsiders if the family members don't have the skills. When choosing those most likely to succeed, put together a checklist of qualifications--for instance, education and experience requirements. Look for leadership skills such as integrity, self-confidence, interpersonal, motivational, listening and conflict skills.

There is no greater barrier to planning for succession than lack of a consensus among family members about the direction of a business. The vision for the business has to be clear. Members of the family have to be clear about what they want and where they see the business headed. Too often we assume that we know what each member of the family wants and expects, then realize otherwise too late.

Both generations have to be involved in this process. The family history, past business experiences, and traditions are a big part of setting a proper foundation for the vision. However, you can't drive a car by staring in the rear view mirror. Times do change and eventually it may be time to break free of tradition and embrace new technology, product lines, and management methods.

But what if your children aren't up to the job? How do you choose between a child's ego and solvency? A family business is, after all, a business.

David Bork, founder of The Aspen Family Business Group, and author of Family Business, Risky Business offers these suggestions:

1) Think twice before you hire your children in the first place. Are you certain he or she has the right stuff?

2) Treat them as you do any other employee. Don't rationalize away weaknesses. Raises and promotions should be based on performance.

3) If you give your children shares in the business, make sure you have a right to buy them out.

4) If things are not working out, tell the heir yourself. Explain where he or she went wrong and why you think your life's work is being jeopardized--along with the heir's inheritance.

5) Do all of this while he or she is still young enough to start another career. If you made the wrong choice, don't take it out on him or her. You made the mistake, not your child.

Interest in the dynamics of family-owned businesses has grown in the last few years. As a result, the number of associations and organizations dedicated to family business issues has multiplied. The Canadian Association of Family Enterprises (CAFE) and the Business Families Foundation (BFF) are two organizations dedicated to helping families in business manage a wide variety of issues ranging from taxation inheritance, succession planning, improved work relationships, and corporate governance. BFF, for instance, is now working closely with major Canadian universities to help them create International Business Centres that will offer a variety of services to family business members, and to the professionals who work with them.

It's often said that families can only survive in business by separating the family from the business. While this may sound sensible, in reality the roles have to co-exist. Successful business families learn to deal with emotional issues so they can maintain an atmosphere of trust. With honesty and forward thinking on both sides, that trust will remain as succession plans are made.

Debbie Therrien is a Hamilton-based freelance writer.
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Title Annotation:Human Resources
Author:Therrien, Debbie
Publication:CMA Management
Geographic Code:1CANA
Date:Oct 1, 2004
Words:1272
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