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Transferring your family business: Are you ready?

Photographic portrait of Frédéric Tissot
Frédéric Tissot

Director, Head of EY Entrepreneur Of The Year™ | EY Switzerland

07 Nov 2022
Related topics
Family enterprise

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Successfully transferring a family business takes time, coordinated effort and meticulous planning.

In brief

  • Communication and collaboration are important in the succession process
  • Sufficient time: It’s never too early to start
  • Succession planning is time well spent

Succession is known to be one of the most difficult events for a family business. When performed for the first or second time, most families don’t have much experience or proven guidelines. Therefore, for most of them, succession becomes a major challenge that only a few manage to overcome without any problems.

The degree of complexity depends on each situation and each individual family: How many potential successors are there? This becomes even more complicated when several family members take over the business together. Having said that, there are many advantages for families who successfully do so: A close-knit family provides a solid foundation for a thriving business and a smooth succession.

There are advantages and disadvantages to having one or more successors. However, a family business has much to gain if its business is transferred to a group of heirs rather than to a single successor. In any case, the family and the business have a better chance of success by staying together.

Generally, family businesses make decisions more quickly and make choices for the long term in comparison with non-family businesses. Many family businesses choose, if necessary, to go without dividends for an extended period. They are more agile and financially prudent. Thus, they are positioned differently by having a greater ability to adapt to the world around them.

When it comes to succession decisions, family business owners are generally split between modern, traditional and cultural approaches. Of course, this is a far cry from the days when passing the business to the eldest son was a relatively easy solution. Times have changed and most families now want to find the best successor, who might not necessarily be the eldest son. Succession is a complicated issue for many families: Emotions, traditions, old patterns of behavior and incorrect or unspoken expectations interfere with and complicate matters.

The main concerns faced by family businesses

  • Should the most capable child take over the business?
  • Who is the most competent child?
  • Should the eldest child take over the business?
  • Should siblings and/or cousins take over the business together?
  • Is the best solution to divide the business to avoid conflict?
  • Should the family tree be redefined?
  • What other positions are available for family members if they do not become the CEO?

Giving the majority of the family business to a single successor can certainly provide stability and keep the family business together to carry on the traditions. But this solution is not a panacea.

Consequences of an unplanned family business succession

Family members who are excluded from the succession may have negative feelings about being left out or simply not being considered. This can have a lasting impact on the family. And if someone reluctant or not really wanting to take over the business inherits it or is asked to run it: how will that affect the business? How can we ensure that successors will make the right choices in the future?

Five aspects of business succession that families should keep in mind

There is no one-size-fits-all approach to succession in a family business. Each family must find the solution that works best for them. Here are five aspects to consider:

  1. Families that are good at communicating properly and regularly are able to develop trust and joint responsibility; they often bring greater unity and cohesion to the business than businesses that have only one owner.
  2. Different successors may have different expectations of their roles. Some may have more knowledge and be more invested than others, who may not wish to be involved at all.
  3. What if the successors simply see the legacy of the business as a way to have an easy life and easy money without making any effort?
  4. Owning the business together without clearly defined roles, boundaries, expectations, and knowledge can become a source of mistrust among siblings. This can even lead to family members stop talking to each other.
  5. Some families also face unnecessary challenges when the previous generation waits too long before involving the next generation. Children may have other plans and not want to be involved in the business. The subject should be addressed early even if it is sensitive. Many families are looking for guidance in dealing with these challenges.

How EY can help

  • Family Office

    Our family office professionals can help you evaluate best practices of leading family offices to support the family’s vision and legacy. Find out more.

    Read more

It's never too early to start discussing this with the next generation

Only a few families are able to initiate and manage succession conversations on their own. This is a difficult task that is often put off. Stepping out of your usual family roles and discussing options with the next generation can be a delicate and demanding task.
 

Each member of the family is afraid of hurting others or expressing something undesirable. Succession conversations are very different and sometimes intimidating in comparison with conversations usually conducted between parents and children.
 

Many families choose to bring in outside help: A neutral coach or counselor can be a great help in moderating and calming the sometimes highly emotional conversations.
 

Uncertainty and conflicts related to succession can be avoided if the owners from the previous generation involve the new generation early on. This can be done both in the context of the family business and in conversations about the next successor and owner.
 

Successors and heirs must learn to own the business and make decisions together. They need to build mutual trust and learn to work together as a team with one voice. The earlier they start, the easier it will be for them to make decisions and the more responsible they will be as owners.
 

The expectations of new and older generations in the family business may be different, but their core values are generally the same. Once the conversation begins between seniors and juniors, families often realize that their aspirations are the same. They just never had the opportunity, or took the time, to talk about it together. These discussions provide both generations with important knowledge and understanding of each other and the business, helping to strengthen the foundation for a successful family business.
 

Family businesses that want a harmonious understanding between generations need to share their knowledge and discuss key issues:

  • How do we create a language of ownership, an awareness of the role of ownership and its responsibilities?
  • What are our strengths?
  • What is our goal, and why are we doing this?
  • What do we do together?
  • What are the history, values, and objectives of our family?
  • What is our purpose?

This enables the next generation to engage in conversations about what they want for themselves and for what they own.
 

Here are some questions to get the conversation started:

  • Why should we own it together?
  • What are the advantages and disadvantages of being joint owners?
  • What will we own in the next ten years that we would still want to own together?
  • What opportunities are available to me within the business? Where do I start?
  • What knowledge is needed?
  • What are our expectations?

What do I expect from myself as an owner? What do my parents expect from me? What do the other members of my family expect from me?

Summary

Family businesses that allow the next generation to take over the business jointly often have a greater chance of success. Succession in a family business takes time and effort, but it’s worth it for the continuity and prosperity of the business. The effort put in will pay off in the long run for all parties involved.

About this article

Photographic portrait of Frédéric Tissot
Frédéric Tissot
Director, Head of EY Entrepreneur Of The Year™ | EY Switzerland
Rooted in Switzerland with a global mindset, Frédéric is passionate about entrepreneurship and innovation. He leverages EY's resources to help entrepreneurial firms succeed.
Related topics
Family enterprise

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Limited, each of which is a separate legal entity. Ernst & Young Limited is a Swiss company with registered seats in Switzerland providing services to clients in Switzerland.