Running a successful business requires planning, sound financial sense, a slice of good luck, and everything in between. Running a business with your family throws up a load of other variables and issues. One bone of great contention is the issue of succession: Who takes over when the head of the business retires or passes away.
CNBC's Lasting Legacy listens to the views of family business experts and finds out what it takes to ensure that a business run with your mother, father, brother, sister or anyone in between, goes smoothly.
Planning, planning, and more planning
Deciding how to transition from one generation to the next is crucial.
"Succession in a family business is one of the most agonizing experiences that any family business face(s) when they move from one generation to the next, so of course it's very important to think about succession," Alfredo De Massis, director of the Family Business Center at the Lancaster University Management School, told CNBC in a telephone interview. "Consequently, it's very important… to plan the succession process itself, because it is a process."
John N. Mayes, senior consultant at The Family Business Institute in Raleigh, North Carolina, told CNBC via email that it is "vitally important that every family business expecting to survive to the next generation have a well-thought-out succession plan."
This, Mayes added, means family businesses need to develop and maintain both a management succession plan and an ownership succession plan.
"The management succession plan defines who will lead the family business into the next generation, how the future leaders will be groomed for their roles, and how and when the transition will ultimately take place," he said. "If the "who" is not obvious, qualifications and a plan to fill this void must be part of the plan," he added.
Fiona Graham, from the U.K.'s Institute for Family Business, told CNBC that having a succession plan in place was key to "enduring family business success."
"A proper succession plan places the business on sound footing for the future," Graham went on to explain. "Without it, people don't know what to expect when the time comes for the business to be passed on and this can result in family frictions," she added.
Planning becomes all the more important when one realizes that as well as finances being at stake, emotions play a role too.
"There are emotions in place, it's not only a matter of economic profit, of economic interest, they care of course about profits but they care much more about non-economic things," De Massis said.
Keys to success
Mayes stressed the need for time when planning for a smooth transition of responsibilities, stating that 10 years was a "good timeframe for successfully completing a family business succession."
As well as giving them a long enough run-up, businesses also need to consider which family member is the "best fit" to lead the enterprise going forward.
Everything from qualifications to interests and leadership abilities needed to be taken into account, he added.
"Consider what is really necessary to lead the business, not just manage the day to day operations," he went on to say. "Even if the son or daughter is the obvious choice, consider whether they have enough experience and perspective to lead successfully."
The 10 years, Mayes went on to explain, gave a business' "heir apparent" the chance to work outside the family firm for an extended period of time, helping them to "gain a different business world view that could prove invaluable to the future of the family business."
For Graham, engaging the next generation is incredibly important to make sure the succession is smooth. "Ensuring that the next generation is involved in the business from an early age and that they are provided with safe spaces to learn and communicate within and outside the business is fundamental to ensure the right talents and passions are channeled into the various area of the business," she said.
While the next generation is important, Graham said that the current crop of management needed to be supported as well, with "tailored support" to approach the subject of succession crucial to a smooth, successful takeover.
For De Massis, a crucial part of ensuring a smooth transition is ensuring desire is present. "You need both willingness and ability," he said.
Outsiders
Letting a non-family member take an active role in the day-to-day running of operations can be a thorny issue for some, but both Mayes and Graham told CNBC it has many positives.
"Outsiders can have great insights into the firm and the market, and this can be a useful tool for entrepreneurial activities," Graham said.
"What's essential for a family business is that the best people are in place to run the business, whether they are family or not," Graham added.
"Family businesses should absolutely consider outsiders when filling key roles in the business – including senior leadership roles," Mayes said.
"'Outsider' can mean elevating current non-family employers or going outside the business entirely for new leadership talent," he added. "It would be foolish to expect that the best fit leaders can or should only be found within the family bloodline."
