Succession Planning -Part 21: Managing a Family Business (Pt. 1)

 No small business is easy to manage, and this is especially true in a small family business.  It is subject to all the problems that beset small companies plus those that can, and often do, arise when relatives try to work together. This will be a 4 part post as the check list for Succession Planning -Part 21: Managing a Family Business (Pt. 1) Is a long one.

 The family member who is charged with managing the company has to work at initiating and maintaining sound management practices. By describing what is to be done and under what circumstances such practices help prevent some of the confusion and conflicts that may be perpetuated in family run businesses

 The questions in this checklist are designed to help chief executive officers to review the management practices of their small family companies. The comments that follow each question are intended to stimulate thought rather than to include the many and various aspects suggested by the question.

 This checklist should serve as a motivator and an outline for you and your business advisors to set in motion the essential changes needed to insure the success and continuation of your business!

 q  Do you have written policies?

 Flag this question and return to it later. Working through this checklist should suggest changes that may be needed even if you have written policies. By the same token, your business will provide input for writing out policies if there are none in writing.

 q  Is executive time used on high priority tasks?

 The time of the owner-manager is one of the most valuable assets of a small business. It should not be dribbled away in routine tasks that can be done as well, if not better, by other employees. Never lose sight of the fact that you as owner/manager, have to make the judgments that will determine the success of your business.

 You may want to run a check on how your time is used.

You can do so by keeping a log for the next several weeks. On a calendar memorandum pad jot down what you do in half-hour or hour blocks. Then review your notes against the questions: Was my time spent on management tasks such as reviewing last week's sales figures and noting areas for improvement? Or did I let it dribble away on routine tasks such as opening the mail and sorting bills of lading? You may want to ask your key personnel to run the same sort of check on their time.

 q  Do you set goals and objectives?

 Goals and objectives help a small company to keep headed toward profit. Goals and objectives should be specific and realistic. In addition they should be measurable, time phased, and written. List your goals and objectives by writing them out for your present successful operations. Objectives that are written out in straight-forward language provide a basis for actions by your key personnel. For example, state that you will sell certain number of units this year rather than saying you will increase sales.

Is planning done to achieve these goals and objectives?

 In a sense, planning is forecasting.

 An objective, for example, for next year might be to increase your net profit after taxes. To plan for it you need to forecast sales volume, production of finished goods inventory, raw materials requirements, and all the other elements connected with producing your forecasts, you will want to make provision for watching costs, including selling expenses. If there are key employees who can provide input into the planning, ask them to become involved in that process

 

Succession Planning Part 20: Making Succession Work

Making Succession Work

 The key to making succession work - you must honestly communicate. This is the key ingredient. Use the family retreat as well as family meetings. Family meetings can educate the family in discussions about the nature of the firm, the kinds of leadership skills needed, entry and exit conditions, decision-making policies and conflict resolution procedures. Casual conversations about these issues can contribute to your formal planning later on.

 Family meetings do not have to be formal affairs, but they should occur regularly and have an agenda. Parents don't have to lead the meeting; have the offspring organize and conduct a portion of the meeting. Use the meetings to defuse any potential time bombs.

 Anticipate problems. Will there be any problems with non-family members? If so, which ones? How will they be a problem, and what can you do (short of firing them) to handle it?

 Sibling rivalry is another problem to consider. Does it exist? If so, how will you resolve it?

 It may not be a problem until the successor is named. Develop a code of conduct for sibling relations. This code will outline how siblings must act toward each other (i.e., in a way conducive to a healthy business), including how to work together, how to play together and how to keep spouses informed about what's going on. Anticipate problems that may arise and meet them head on.

Summary

Succession is a process that may extend from two to four years or longer depending on your age and on your successor's age. It occurs in phases. Over a period of time, you initiate or educate your children to the family business. After determining a successor, you develop a plan to transfer leadership in the family business. The decision to announce who the successor is and when the transition will occur depends on the family.

 There are benefits to making an early announcement, including (1) reassuring employees, suppliers and customers, (2) allowing siblings time to adjust to the decision and to make alternative career decisions, if necessary, and (3) enabling the entrepreneur to plan for retirement.

 The fundamental goal should be to pass the family business successfully to the next generation. To do this you must feel financially secure, secure with the company's future goals and plans and secure with your successor.

Succession Planning - Part 18: Education of the Successor

Education of the Successor

Training or educating the successor in the firm is a delicate process. Many times a parent finds it difficult to train a child to be successor. If so, an alternative trainer may be found within the firm. A successful trainer will be logical, committed to the task, credible and action oriented. These attributes, when tied into a program that is mission aligned, results oriented, reality-driven, learner centered and risk sensitive, will produce a well-trained beneficiary. All of this, of course, is easier stated than accomplished. Education of the successor should be a priority for it will determine the future success of the business.

 A training variant of the management by objectives (MBO) concept is the training by objectives (TBO) concept. This concept can be an effective method for providing both the training for and the evaluation of successors. In the TBO process, both the trainer (you or a non-family manager) and the trainee (potential successor) work together to define what the trainee will do, the time period for action and the evaluation process to be used. This system allows the successor to be placed in a useful, responsible position with well-delineated objectives. It also provides for steps of increased responsibility as goals are met and new, more rigorous goals are established. It is important that the successor enter the firm in a well-defined position. Instead of entering the company as "assistant to the president," which requires that he or she follow the president around all day, the successor (or any other child) should enter with a specific job description. In a small business this is very difficult because everyone is usually responsible for all tasks. Nevertheless, the successor cannot be evaluated effectively if he or she is not given responsibility and authority for certain tasks.

 Your business will enable you to determine which criteria are necessary for good training. Usually, an owner wants to assess a successor in the following areas:

• Decision-making process.
• Leadership abilities.
•  Risk orientation.
•  Interpersonal skills.
• Temperament under stress.

 An excellent way to assess these skills is to let the successor give his or her insight on a current problem or situation. This is not a test and should not be confrontational. Instead, solicit advice and try to determine the thinking process that is generating your successor's suggestions. For example, you may be faced with a pricing decision. Give the successor all the information needed to determine whether or not to raise prices, then sit back and listen. Ask questions when appropriate--these should be "Why?" and "What if?" After the successor is finished, say "I was considering . . ..” This way each of you can learn how the other thinks and makes decisions.

 It is possible that your leadership style differs from that of your successor. Your employees are used to your style. If your successor's style is very autocratic and uncaring, your company is going to experience problems.

 Potential successors should be introduced into your outside network (e.g., customers, bankers and business associates), something many managers neglect. This will give everyone time to get to know your successor and allow the successor to work with business associates and bankers, and to get acquainted with customers.

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