How To Plan For Succession In Family Business

It’s never too early to start succession planning in a family business. Here’s a story…

…From the moment the Yung Kee restaurant sold its first goose in Hong Kong, in the 1960s, its founder Kam Shui-fai groomed two of his sons for management roles. However he never had the time to develop a structured approach to succession planning.The younger son Ronald Kam Kwan-lai underhandedly stripped the eldest son Kinsen Kam Kwan-sing of his management role at the restaurant. If this were not bad enough, the latter died in unexplained circumstances a few years afterwards, having been pushed out of the only business he ever knew.

The succession process does not have to be a heart-wrenching family drama.

The succession process does not have to be a heart-wrenching family drama.

Family succession should never end this way—and probably wouldn’t – if more founders of successful enterprises followed some basic rules in long-term planning. Before discussing this topic, let’s look at three proverbs that illustrate why having a structure in place is so important for family leaders.

Three Bits of Wisdom

Proverb Number One: The comb to groom a successor has brittle teeth. Each high-potential family member is unique and so will be his or her need to have a formal plan to guide actions. The comb used to groom one family member should not be used a second time.

Proverb Number Two: Size should not matter in family planning. No matter how large a business is, the founder or current family leader should develop formal business planning and written policies 20 years in advance of a changeover. Needless to say, many family owners resist putting plans into place because they do not want to devote the time to ensure it is done. In reality, a family owner should take great care to complete the formalization or professionalism process before the business actually needs it.

Proverb Number Three: Feelings need planning. Some business owners think that formal plans are the surest way to facilitate a smooth process. Nothing could be further from the truth. Embedding the family business feeling into every aspect of the family business requires formal planning and written rules. In doing so, owners can create their own organizational culture, which should reflect the entrepreneurial spirit of the founder that has developed within the organization. Structure needs to evolve as the business grows, so that the firm can maintain a family based culture.

Another Three Things To Keep in Mind

It is unlikely than any of these proverbs resounded at the Yung Kee palace during the many decades that Kam Shui-fai was building his empire. Nevertheless family leaders can avoid such dramatic outcomes by following a structured approach to long-term planning. Here is a three-step model that can help families make their businesses sustainable:

•Identify: Evaluate current and prospective family assets and roadblocks.

•Plan: Determine the appropriate ownership structure and management choices.

•Cultivate: Align the ownership design to both family and corporate governance.

If you’re dealing with the many steps involved in planning for succession, Williams and Kunkel CPAs, may be able to help, so call us today at 972-446-1040.

To connect with us to receive updates throughout the business week please follow us on Twitter or LinkedIn or Like us on Facebook.

Source: SCMP

Scott A. Kunkel, CPA, PC

7801 Mid-Cities Blvd. Suite 400
North Richland Hills, TX 76182

Free consultation!

Call us now 817-498-1040 or contact us online to schedule a free consultation session.