Best Practices for Family Business Succession Planning

Running a family business is no walk in the park. The family dinners or holiday gatherings could be mistaken for board room meetings, with topics of conversation jumping between family matters and minute business topics. Discussions get further complicated when it comes time for a transition of ownership as the first generation of family businesses starts to look towards retirement and relinquishing control of day-to-day activities. Who will step in to lead the company? A number of succession issues arise ranging from siblings quarreling about how to divide up the business and inheritance to instability within the organization as employees wonder what their future holds. Yet, so many family owned businesses don’t have a solid plan.

Problems in Succession Planning in Family Business

Some owners prepare to sell the family business and about 30% of U.S. family-owned businesses turn into second-generation businesses, but often not without complication.

When you start to peel back the layers, the emotions and history of a family are always at the center. Ed Pendergast, a board executive who has sat on eight family boards and advised many more family businesses, often sees one or more family members feel that they are not being treated fairly by other family members. Whether it’s viewed as a grudge or just selective memory, these power dynamics among the next generation in line can cause headaches for the business.

But surprisingly, Pendergast doesn’t view the second generation as the biggest challenge: “It’s actually the third generation with the hardest road ahead,” he says. “The first generation runs the business and passes it on to the second generation. And then by the time the second is trying to figure out who to pass it on to, family member A has three kids, family member B has two, and family member C has none. Who’s going to be in the business? It becomes much more complex the more people are involved.”

The numbers show just how difficult this transition is. Approximately 12% of family-owned businesses are passed down successfully to a third generation and only 3% to a fourth or beyond.

So how can families avoid the common pitfalls in succession planning, and instead focus on best practices?

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A Checklist for Family Business Succession Planning

After spending years or even generations building a successful family business, some of the toughest conversations circle around succession planning. What happens when an owner steps down from the business? Will it be passed down to family members, and is that individual ready to lead? Will it be prepared for sale, and will an owner get the value they want from an exit? What are the benefits of succession planning and are they worthwhile? How do you write a succession plan? The list of questions can make your head spin.

Family-owned businesses in the US generated 64% of the national GDP and created 78% of new jobs in 2018 while employing more than half the country. Family businesses of all sizes are vital to our economy yet in a 2016 PricewaterhouseCoopers survey, only 23% of family businesses had a full succession plan in place.

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After two years of unrelenting decline and $6M in losses, the owners of Styrotek, a packaging manufacturer for table grapes decided they needed to bring in outside help to turn things around.

Styrotek was founded in 1973 by a group of grape growers who came together to produce boxes for their farming operations in the central valley of California. While manufacturing was not originally in the company DNA, the business got to the point of creating a consistent product and quickly grew along with the grape industry.

That was until 2014 when things started to go sideways. “The company was somewhat in disarray,” Chris Caratan, one of the owner’s of Styrotek said. “Our management team at the time was not working up to par and there were some surprises in year-end numbers.”

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Selling in a Few Years? Start Packaging Your Company Now

According to a Harvard Business Review report, the failure rate for mergers and acquisitions sits between 70 and 90%. Even before the deal closes, it’s not uncommon for deals to unravel.

If the odds can be overwhelmingly negative, what can you do to increase your chance of success if you are looking to sell your business?

Prepare.

Don’t wait for the M&A process to begin to get your team in gear – that’s a sure fire way to fail.

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How Much Does An Interim Executive Cost?

Once owners, board members and investors figure out exactly what an interim is and how an interim can help them, the next question is invariably, how much does an interim executive cost?

The short answer is: there is no off the shelf rate card for interim execs. Or more precisely, it doesn’t exist for the best interims in the world. There are a couple reasons rate cards don’t exist, at least not amongst our RED Team, an elite group of interim, project and fractional executives who have been selected because of their track records creating incredible results in companies.

Company Situations Vary Greatly, So Scope of Work is Always Unique
Your company is your baby and your baby isn’t like anyone else’s in the world. As such, the caliber of leader you need and the process and deliverables necessary to achieve the best outcome is a tailor-made solution – not an off the rack, one size fits all experience.

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Interim Execs works with companies, board members, and investors to match them with C-level talent wherever needed. And it’s not just about title – our Rapid Deployment Program looks at where you are at, and where you want to go.

Maybe there is a leadership gap, or maybe you are trying to get the business to the next level – expanding overseas, acquiring and integrating other businesses, transforming technology and operational processes. Maybe you see trouble on the horizon if you don’t make changes fast.

Interim executives specialize in quickly assessing your business, creating a strategy moving forward, and actually executing on it. Yes, that means doing the work. This is not consulting. We don’t deliver long reports that you can’t act on. We fix. We optimize. We grow. We lead.