Posting by Geoffrey D. Brown, CPA, Principal at Bond Beebe Accountants & Advisors
When considering how to prepare the next generation in a family business, it is necessary to focus not only on those who might work in the business and become part of the management team, but also those who may only be shareholders and not even work in the business. Below are four tips, or keys, for preparing the next generation for leadership that apply to those who are going to actively participate in the family business. These tips can also be applied to those who will only have an ownership role, as they still shoulder a certain amount of responsibility. Those four keys are:
1. Start the process early. Many family businesses allow and even encourage the children of owners to work in the business as teenagers. Often, children start by doing the most menial of tasks; however, while they perform these tasks they are taking in and processing a lot of information and forming their own thoughts and opinions. Up to that point in time, they have also enjoyed the fruits of their parents’ labor, but have not had to put forth any effort. So, starting the process early really means that you start educating them about the family business, the associated roles and responsibilities, the risks and rewards, and what it all means to the family.
Talking to children and having frank and open discussions about the business is also very important. You are actually helping to guide their thoughts and opinions instead of leaving it up to them. The burdens that go hand in hand with the rewards, the successes and failures, and the responsibilities that you have, not only to the family, but also to those that you employ – these are all relevant topics. The more your children know and the earlier they know it, the more prepared they will be when the time comes for them to take on a leadership role.
2. Set expectations for education. In today’s world, education is an absolute must. Most successful businesses are run by a bevy of MBAs and industry experts. So, too, should your family business if it expects to compete and survive.
Many family-owned businesses establish criteria necessary for family members to enter the business. That usually includes a certain level of education. Those in the wine business, for example, may obtain a university degree in Viticulture and Enology (winemaking). And, I’m sure there are those businesses which encourage or require family members to go on and study for an MBA. Not all businesses need to go to those lengths, but there should be some minimum requirements that are appropriate for the field(s) in which the business operates. Going back to starting the process early, offspring should be aware of entry criteria so they can either choose to prepare to meet it or follow their own path.
3. Encourage outside experience. Often, another item on the list of entry criteria for family members is some form of outside experience. I feel this is important for two reasons: the first is that it allows the younger generation to learn how others have become successful, how other business cultures might or might not work and that there is always more than one way to solve the puzzle. Second, the opportunity to work elsewhere (where they aren’t the boss’s child) and prove themselves is great for their self-worth, well-being and confidence. If you think about the reasons you may hire a non-family executive from outside the company, don’t those same reasons apply to your children?
4. Offer training for varied roles. Once inside the company, the education continues; a management training program is probably appropriate. Working in different departments or divisions and reporting to different bosses allows the next generation to learn more about the business than they might otherwise.
Participating in various roles within the organization will allow family members to really gain insight into how the business is run and will provide valuable lessons learned when they ascend to a position of greater authority. Not everyone in the next generation is going to become the next CEO of the family business, so this process also provides an opportunity to find out where each family member fits best in the family business.
We all know that every family business is different and that there is no one way to prepare the next generation that works for every business. Adapt the above principles to your business in such a way that it provides for the best possible outcome both for the next generation and the success of your family business.