So, you're only 55 years old and you still have plenty of time. You started or bought your business 20 years ago, or maybe you inherited it. You're in great shape and certainly can't see yourself leaving the thrill of running your own business.
Article by Christine Blondel | Reading time 3 minutes
However, now is really the best time to actually start thinking about its transmission. Not that you'll stop working now, but business transmission can take many years from your first thoughts about it up to full completion. What's more, the earlier you think about it the easier it is, because you know you still have plenty of time.
Here's what Luc Darbonne, fourth-generation leader of Daregal, the world leader in aromatic herbs, says: “I think that a leader needs to start working on their succession at around 50 years old, well ahead of time. Afterwards, the emotional charge becomes too strong.”[1] He shared his thoughts with us back in 2007 and he had already started a couple of years before. It was only in 2013 that his son Charles was formally installed to succeed him.
Assuming that you are the sole owner, you probably have many options open to you. If other family members are involved in the business, as owners or employees, or are getting ready to enter the business, it's crucial to have open discussions with them about whether the business should stay in the family. Business strategy, financing, family talents, and commitment, are some of the factors that will come into play in this decision.
Selling the business
This seems an easy option, still you may have preferences regarding the type of investor that will take over the business. You may wish to reflect on the question: who or which organization would be the best owner for this business?
One of your efforts in the coming years will be to ensure that your business can survive without you, to 'personalize' it, particularly by building a stronger Directors Board. Such a Board can also help you through all the steps needed to prepare the business and to arrive at a 'good sale.'
You might consider selling the business to your managers and employees. It has the benefit of bringing in new owners who already know the business well and are committed to it. Though, it's important to make sure 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 through the failure of negotiations. You could sell to one or several key managers, and/or use an employee stock ownership plan, making all employees partial owners of the company.
Transferring the business inside your family
This option is a given for some businesses that have already been through several generations of family ownership. These individuals may feel like Charles Darbonne, in the 5th generation of a family business: “A family business is not entirely yours. It does not belong to you. You're here to pass the baton on[2]”. However, family transmission is not an obvious choice for many entrepreneurs. Some prefer to cash out after all their efforts; others - like Bill Gates – wish to see their children create their own professional life.
Discussion inside the family is important to discover whether some family members (leader’s children, nephews or nieces) are interested and have the talents to take over the business. Such transmission will require many years to be effective since the following questions need to be addressed:
- Who'll lead the business? Family or non-family? How do we make sure that we have the best leadership?
- When and how will ownership be transferred?
- How will governance be organized in the new ownership configuration?
- How shall we ensure that conflicts don't arise?
Family transmission is a long road but can bring a great deal of satisfaction to all when properly handled. A family business is a meaningful project which family members can identify with, and the family can bring commitment and a long-term view to the business.
Further considerations
While one shouldn't underestimate the efforts that family transmission may require, neither should you underestimate the challenges that wealth can bring in the case where you decide to sell the business: managing wealth is very different from managing a business; new meaning will need to be created (including philanthropy, or new ventures), and your children’s (or grandchildren’s) education will be impacted by the new environment.
We've already mentioned several factors to take into account when planning for business transmission: the business needs, the family’s commitment and talents, the owner’s future needs, etc. Tax issues will also have an influence on this decision, but we would argue that they should not be the determining factor.
In any case, it's best that you start early: it will leave you time to consider the different options, to discuss them with the family and to 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)
