Taking Over the Family Business? Here’s What You Need to Know

Written by: Sarah Landrum, Founder, Punched Clocks

When a business remains in the family for generations, you will likely feel a mix of pride and pressure to take over the company.

After all, you probably have the same entrepreneurial drive and it can be a great way to jumpstart your career path.

Should you start your own company or take over the family business? Both come with their own sets of pros and cons.

Entrepreneurial Endeavors Come with Risks and Rewards

In Canada, 49 per cent of new businesses fail in their first five years, but entrepreneurial endeavours come with risk and reward.

You start from scratch, which allows you to build what you desire and make your mark. Even when entrepreneurs fail with their first startup, they come back to the drawing board to try and try again. Building from the ground up is highly satisfying.

However, blank slates bring their own pressures to the table because you must roll with the punches of a rocky business start and continuously innovate. You’ll put in long hours that may take you far away from your loved ones.

If you’re interested in a consulting role, your family may get involved in your start. Among entrepreneurs, 48 per cent were raised watching a family-run business grow and witnessed the nuts and bolts of its operations. Having observed the value of hard work and freedom, this often inspires potential entrepreneurs to start their business.

Entrepreneurs must have a plan A, plan B and a plan C, but you’re not going into the startup world without any experience of the benefits and consequences.

Family Businesses Weather Ups and Downs Together

There’s only one CEO, and if you have siblings vying for the position, is a potential family feud worth it?

Family businesses come with their ups and downs, but those are generally predictable since the business weathered many battles previously.

One of the biggest benefits is job security. Family businesses tend to be stable, and one U.K. survey discovered this is due to these businesses having frugal spending practices and a diverse board. Families protect their own with a stringent eye toward risk and how to maintain growth in the long term.

That stringent eye may also mean narrow views and you must ask yourself if you’re up to challenge the status quo. When families combine home and business lives, power struggles can prove detrimental to all relationships.

Tips for Taking Over the Family Businesses

No matter your decision, you should gain work experience in the outside world so you have more skills and vantage points to contribute should you take over the business leadership.

Don’t be afraid to ask your family what taking over the family business entails. You’ll make a more informed decision, and should you decide to take over the family business, here are a few tips to guide you.

1. Plan in Advance for Succession

Of Canadian family-run companies, 95 per cent state succession planning is essential to securing the business in the long run. When families have a plan in place, it’s easier to follow an agreed upon order of operations instead of trying to pick up the pieces of the family business in a rush.

Succession planning is important, no matter the CEO’s age, and families should begin succession planning at least 10 years in advance of retirement or other plans. Family business longevity is more likely when the CEO consults with an experienced attorney and advisers to select the optimal point of succession and ownership transfer. Attorneys assist with regulatory compliance, selling business interests, business tax planning, shareholder agreements and retirement planning, among others.

Attorney Thomas J. Collura, Partner at Hodgson Ross, says the biggest challenge for family members taking over the family business lies in the failure to properly plan for the shift in control, ownership and management of the business.

“The sale or gift of a business interest during life or upon death requires careful consideration of any transfer restrictions, buy-sell events, business valuation, payment terms, and any income, gift or estate tax consequences,” says Collura. “Similarly, thought is necessary concerning the management and control of the business operation and the dynamics of any change upon family, co-owners, employees, vendors and customers.”

2. Understand Core Company Functions

Do you know the family business’s critical and core company functions? Shadow the CEO and get to know what the duties are besides what you observed from a young age.

You don’t take over a company overnight. Ideally, you’ll rise in the ranks and understand the importance each role lends to the company’s operation.

As you become a senior-level employee, your duties will grow and you will take over more of the essential company functions. This will prepare you to move into the role of successor and CEO.

3. Make a Mock Business Plan

You likely already drafted several mock business plans for entrepreneurial endeavours as you explored your interests and passions. So, do the same for the family business. What would your takeover look like ideally? What about realistically?

Is there a middle ground that combines your dreams for the future of the company with the exiting CEO’s long-term vision? With any change comes new ideas, and unfortunately, the old ways of doing things don’t always work in the long term.

You also risk losing the role of successor and future CEO if your plans clash with the values and services established by previous generations. Customers and clients return out of loyalty because reputation and trust sustained this long.

Business plans typically come in two forms — lean and traditional. Lean business plans take an hour to write, use a shortened standard structure and summarize the key points. Traditional business plans are more common and can be over 10 pages, going over everything from cost analysis to marketing. Bonus points for pie charts with statistics!

4. Be Flexible and Patient

Regardless of your vision, remember you’ll carry on a legacy. You will build your own legacy, but it’s important to honour those who came before you. Their lessons come from decades of experience.

Continue the legacy by building on what’s already established, reputable and trustworthy. This will continue the promise of success for the business, and in time, integrate more of your vision.

Be flexible and patient as change comes, because both qualities are important in a leader and family member. Where there’s a will, there’s a way, and when you have more than one will, that means there are many ways to explore.

No matter what you decide, be upfront with your family about your vision – even if you’re still exploring possibilities. You’ll learn more information to put you on your future path instead of waiting for the other shoe to drop.

You also won’t risk letting anyone down any more than deciding not to carry on the legacy. Businesses go on with needs that must be met daily and responsibilities must be divided and distributed. If you try on more duties, you may decide to stay and carry on as CEO. Your family may also surprise you and jump right in with their support as you start your entrepreneurial endeavour.