Multigenerational family businesses are an integral part of the Canadian economy. They actively give back to society through philanthropy, social programs, significant investments, and business culture and values cherished by stakeholders. In this light, the fact that only a small percentage of family businesses survive beyond the first generation is alarming.

Surprisingly, most of these family businesses fail not because of business hurdles but because of misalignment of values, ideas, goals, and vision between older and newer generations. While the founding generation tends to hold on to their traditional views and system of doing things, the succeeding generation aims for innovation and expansion using modern tools and ideas. Unable to find common ground, the business bears the brunt of the generational clash.

How can a family business break this mould and build a multigenerational legacy? Let’s discuss it in detail.

Tips to Sustain Multigenerational Business

Two key factors drive the success of a multigenerational business. The second is communication (we’ll get to the first one in a bit). Effective communication through regular meetings within the family and with the board of directors is essential for strategic business planning. The clear demarcation of family responsibilities and business responsibilities for each family member, and adhering to those roles sincerely, creates a strong foundation for a long-sustaining family business.

Other things need to be sorted out right from the beginning to avoid future roadblocks and family conflicts.

The Need to Go Professional

As mentioned above, issues usually arise when leadership changes hands from the first (founding) generation to the second, or from the second to the third. The first generation finds it hard to let go of its dominance, the third generation refuses to accept the “outdated” ways of their grandparents, and the second generation is caught in the crossfire, unable to take sides or make decisions that will keep everyone happy.

However, for a business to survive and thrive, every generation must approach business matters professionally. A professional process can help pool efforts and ideas to adapt to market trends, customer preferences, and competition without personal bias.

Professional Management

While the family owns the business, it needs a professional setup and structure to grow. Committed leadership, responsible managers, employees with the right skill sets, and a systematic process for hiring and managing finances are important. They can form committees for governance, compensation, audit, and investment, with a mix of family and non-family members to ensure the business runs professionally.

Family businesses should also encourage periodic audits, timely tax filing, employee and family training, and other professional practices to stay competitive. Every member of every generation must respect and follow this management structure, regardless of their position in the family or the business hierarchy.

Advisory Board

One of the most underappreciated factors in a multigenerational business’s success is a structured board of directors. Ideally, this board should comprise both family and non-family members.

Independent directors bring diverse skills and expertise, remain neutral, and focus on improving the business. Their network and experience are valuable assets for the company, especially during economic downturns. A third-person viewpoint brings objectivity and a fresh perspective to any issue, which can help break deadlocks in business decisions.

Such a board discourages any family conflict or bias from entering the professional space. Hence, it is important to select these board members based on merit, competency, experience, and integrity rather than personal bonds. A professional business consultant can help identify board members who are capable and willing to work in a family business setup.

Prioritizing Capability over Family Ties

Succession planning in multigenerational businesses focuses on which member is fit to be the next leader based on personal views. The eldest heir or the one who shares a loving relationship with most family members is the top choice.

However, a business leader must be selected based on their merit, capability, and loyalty to the business. This decision must be made rationally, not emotionally. And if that means selecting a non-family member over a family member, the board must put the business’s needs first and do the needful.

Making such decisions can be difficult, both emotionally (for the family) and strategically (for the board and stakeholders). Consulting a business advisor and estate planner can help solve this problem.

Periodic Family Meetings to Strengthen Family Bond

Communication holds the key to a successful family business. Organizing regular family meetings, not to discuss family problems, but to discuss long-term vision for the business, can keep all family members aligned with the business goals and informed about its activities and plans. These meetups help resolve brewing differences early, safeguarding the business from major family fallout or conflict.

These meetings can also cover major decisions, such as new openings for interested and eligible family members, and matters involving changes in ownership structure or family investments.

That said, these meetings can easily turn into informal family events, with business matters taking a back seat. Setting rules before the meeting helps everyone stick to the agenda. Appointing a non-family professional facilitator is a great way to keep everyone on track. Members can inform the facilitator in advance about any business-related topics they would like to discuss. The facilitator, in turn, must be skilled at guiding the meeting in the right direction and encouraging active participation and healthy discussion, without letting the family be swayed or distracted by emotional family issues.

Preparing for Succession Early

We have already discussed how communication is one of the two key factors that determine the success of a multigenerational business. The first and most important is preparing for succession well before the intended date.

Most families with businesses understand the importance of a well-drafted succession plan and a well-trained successor. However, they often leave succession to the last minute because they’re reluctant to let go of control or simply overlook it. Such delays can have a huge negative impact on the business.

First-generation owners must start mentoring their successors for the role they will one day play in the family business. They should even encourage discussions and questions about the business and involve the younger generation in business activities to break the ice between future leadership and employees. This gives new leaders hands-on experience, guided by their elders, and gives stakeholders a glimpse of what to expect in the future.

The earlier you start training the next generation, the more time you give yourselves to let the reality of transition sink in. Set a retirement date and give your successors a clear indication of when they will step into your shoes. This emotional balance and understanding in the family space is extremely crucial for the business to stay afloat and grow.

Contact Ford Keast LLP in London to Help You with Succession Planning

Talk to a professional accountant and business consultant to introduce professional systems in the family business and begin succession planning early and in a disciplined manner. To learn more about how Ford Keast LLP in London, Ontario, can provide you with the best accounting and succession planning services, contact us online or by telephone at 519-679-9330.