Manage Your Business
Are your kids ready to run your business?
Plan early to set your loved ones up for success.
This is part of The Handover, an original Chase series that aims to help business owners think strategically about succession planning. It is presented by Business Banking.
When Lisa Mazzoni graduated from college in 1997, she didn't plan to return home to take the reins of her family's 100-acre vineyard, Zialena Winery, north of San Francisco. Instead, she launched a successful career as a Big Four accounting firm consultant. "I was gone from the family business for 20 years and never planned to come back," she says.
Yet eight years ago, in thinking about the time when she would have to make a decision between either outsourcing management to a vineyard management company or coming home to run it herself, Mazzoni changed her mind, returned to her roots and partnered with her brother to expand the family business. Ultimately, she launched the Zialena wine brand and tasting room. And it was successful.
That makes Mazzoni, now the fourth-generation owner of Zialena, part of a small group of generational business heirs. Just 12 percent of individual family firms last three generations, according to PwC's 2006 Family Business Survey. Only three percent of businesses last four generations.
Yet, according to the same survey, 43 percent of family businesses don't have a formal succession plan in place. And that's a problem. The smoothest successions stem from years of open conversation, and a deliberate commitment toward grooming the next generation for continued success within the family business, says Jane Beddall, principal of Dovetail Resolutions, a firm that offers mediation, facilitation, and consulting services to family businesses. "Family business succession planning is a process, not an event," Beddall says.
The following three strategies can help you set the stage for a successful transfer in the future:
1. Teach skills—and explore interests
It's common for a family business owner to expect that one specific family member will take over the business when the time is right. However, the person who appears to have the skills or interest sometimes may have neither.
Given that, try to figure out firsthand whether a particular successor would be a good fit for a management position. High school-aged children should work at the family business during summers, says Beddall. That way, the kids can learn the skills required to make day-to-day operation decisions, while the current owners can observe their strengths, and establish a path for growth in key areas.
Even for younger kids, it's not too early to learn to help in ways that are age-appropriate. That's what Mazzoni does, with her own children and nephew, who range in age from 18 months through eight-years-old. "They can help us package wine or set a table with glasses," she says. Those small tasks help the children understand, from an early age, what it means to be part of a family business.
And considering her own initial reluctance to work in the family business, Mazzoni understands that one day her children may choose a different career path.
"If they choose to come back, that's great. If they don't, that's great too," she says.
2. Establish policies early on
The relationships between a family, the ownership of its business, and its day-to-day operations can blur lines between work and home, sometimes causing tensions between loved ones. To avoid this, families should create formal rules around ownership decisions and how wealth will be shared—or not—with family members who do and don't choose different career paths.
"The sooner you start having those important conversations, the better," says Beddall.
3. Avoid blame
Sometimes, the most effective succession plan means bringing in an outside manager or even selling the business to a third party. It's impossible for an owner to know what path will be right for them, though, unless a family is upfront and transparent with each other about their long-term intentions.
Equally important, says Beddall, is that owners know that a third-party sale is not a failure, and has nothing to do with the owner's stature as a business owner or family member. "It's a question of what works for this family, in this moment," she says.
Alaina Tweddale is a Chase News contributor.