While 88 percent of current family business owners believe the same family will control their business in five years, only 30 percent of family-owned businesses survive beyond the founder’s generation and just 12 percent make it to a third, according to research from the Family Business Institute.
Changes in demographics, industry and societal trends can impact succession planning. Engineering a successful generational transition is often the issue that most concerns business owners who hope they have created a sustainable business, says Amy Schuman, a principal consultant at The Family Business Consulting Group.
Schuman, an expert in family-owned business succession planning with more than a decade of experience in the automotive repair industry, offered her thoughts on the trends that are impacting family-run businesses and how shop owners can address challenges.
What are the biggest factors affecting family-owned shops today?
Some of the trends that I see have to do with demographics and gender. In terms of demographics, people are living longer. And when you’re 60 years old, you’re not necessarily thinking about retiring. I think it really changes the dynamic with succession to the next generation. If you’re a young person and you go into the shop when you’re 20 or 21 years old, and your folks are 40, it used to be that they would probably retire in their 60s and you would get the chance to run the shop. That’s not happening anymore.
With those longer work lives means more family members in the business than ever. Shared leadership is becoming a reality and the top tier of the company is getting more crowded.
With any new generation also comes a new attitude. Today, we know that the current next generation is very steeped in technology and will likely apply that to the business. In the repair industry, keeping up with technology is, of course, becoming increasingly vital. This can be an advantage but the founding and next generations will need to figure out how to mesh the attitudes of both generations when it comes to leadership.
Longer lives also impact retirement choices. On average, retirement can last 16 years now. It also comes in many different forms. Some owners want to still be involved in the shop, while others want to move on and retire to a sunny community. Retirement will often require more resources and the monetary requirements for the business must be considered. Figuring that out can become a challenge.
The other trend has to do with how gender roles are shifting. It used to be that women had very different roles than men in the shop and, frankly, weren’t as present in the industry. In recent years, those gender roles have really evolved and women are increasingly taking on leadership roles. To that effect, daughters will have different expectations when it comes to their role in the family business. Shop owners need to be aware of the expectations that both their daughters and sons might have when it comes to the shop. That can make the succession planning process a little more difficult.
What can shop owners do to successfully address these trends?
The first thing is that people are often really afraid of the “scary” conversations and put them off; the scary conversations being the conversations between the generations. What are my expectations of my role? What are my thoughts and plans? What should I be expecting? For each generation to share that can be difficult.
I think the junior generation is afraid to initiate the conversation because they’re afraid their parents might feel like they’re pushing them out. A lot of times, the senior generation might feel they’re very good at servicing the customer, doing repairs and managing people, but they didn’t go into business to have to deal with things like estate planning or succession planning. They don’t necessarily feel they have the skills they need and are afraid they will get in over their heads. Or, they don’t want to share the reality of the financial situation. They just keep putting it off; it’s important but not urgent.
It’s better to face it and try, than to put it off forever. People are making decisions based off assumptions rather than the reality of the situation. Try to be clear about your goals, values and guiding principles.
Those conversations that often feel touchy-feely provide a basis for success. One of the worst things is surprises or the unexpected. You often see situations where the parents’ assumptions and the juniors’ assumptions are very different. What actually hurts relationships more than a bad conversation is disappointment.
Difficult conversations, especially among family members, can have the potential to devolve into an argument. How can family-owned shops effectively have those conversations?
You really need to treat the conversation like a business meeting. First of all, have an agenda and goal for your meeting. What are you going to talk about first, second and third? Meet somewhere neutral. Don’t meet at the office or at the parent’s home. Try a lawyer’s office, Starbucks, or any private but neutral place. A facilitator can have value as a neutral third party, as well.
I would also suggest doing a lot of preparation. If I’m facilitating a meeting, I’ll talk to everybody individually first, and have them at least think through the items before you sit down to talk about them. What do I think we’re trying to create here? Come to the meeting prepared with a few things written down.
If you can talk it through with someone else before the meeting, you’ll have a much more productive meeting. I often think of these pre-conversations as skimming the scum off the top of the pond. If you’re angry or emotional, have that venting session beforehand so you can get the tensions out before the meeting. Also, make an agreement that if there are big issues, they don’t get put on the table five minutes before the meeting is supposed to end.
What are the steps that shop owners should take to start the succession planning process?
Besides having those conversations, a good place to start is get yourself an advisor or lawyer that you feel good about. You’re not a lawyer and you really do need a lawyer to guide you, to hold your hand through this. Ask around for people that have lawyers or advisors they like. Don’t be afraid to interview a couple and find someone that speaks plain English.
If you haven’t already, either address or put into place an emergency succession plan. I think that’s an important first step. If you’re working hard to create a business and you don’t have a will or estate plan, you could lose everything if there’s an emergency. Let people know your simple emergency plan, even if it’s just that your lawyer has an envelope with the instructions. It can settle a lot of anxiety.
Just consider this to be a long-term effort. You’re not going to take care of everything in one day or one meeting. Make the commitment that you’re going to chip away at it.
