Consulting Services • Published 2/28/2019 Family Businesses: Making the Transition

Once a business owner(s) has identified the next generation leader(s), the logistics of making the transition introduces more questions, options and challenges. Every family business is different, and no two transition plans will look alike. The construction industry, in particular, faces its own set of challenges, such as:

• Business development is deeply rooted in relationships that are often difficult to transition.
• Management teams include non-family members who may be hesitant to follow the younger generation.
• The industry’s cyclical nature can create difficulties in the timing of transitions. During growth periods, contractors are focused on running their business and maximizing profits, and during lull periods, contractors are trying to find the next project to “keep the lights on.”
• Industry trends demand new skills and ways of thinking on matters such as attracting and developing talent and leveraging technology.

According to Family Business Succession, The Final Test of Greatness, there are several routes that family business owners can take to transition to the next generation. Each of these options has advantages and disadvantages, and you should discuss these with your family and advisory team to create a plan that makes the most sense for you.

 

Cold Turkey: The owner(s) maintains control until a ‘trigger event’. These triggers can be voluntary (retirement) or involuntary (death, accident or illness).

Advantages	Disadvantages
Succession does occur Conflict is minimal	Unprepared successor

 

Delay, Delay: The owner(s) promises to transition but can never give up complete control.

Advantages	Disadvantages
Some succession does occur Successor(s) is a little more prepared in the event of “cold turkey” transition needing to occur	Successor may get frustrated and leave Successor does not fully develop, because he or she remains dependent on the owner(s) Business may struggle because of the owner’s unwillingness to adopt new strategies

 

Gradual/Progressive: The owner(s) gradually cedes responsibilities over a period of time (i.e., five or six years), and at some point, the owner(s) has successfully transitioned to the successor(s). Or, it is possible that the owner(s) never fully transitions, but assumes a more focused role.

Advantages	Disadvantages
Successor gradually gains experience Owner(s) can gradually explore options for next stage in life	Over time, more opportunity for tension Over time, more opportunity for the process to change course Successor may become impatient Conditions may change to accelerate the successor’s expectations

 

Non-family CEO (temporary): The owner has identified a family successor(s), but the successor(s) is not ready. This often happens with age gaps, or the successor coming into the business later in life. In such instances, a non-family CEO may assume responsibility from the owner(s) and mentor the successor(s) until the retirement of the non-family CEO.

Advantages	Disadvantages
Temporary non-family CEO can help develop skills of successor(s) Non-family CEO can introduce new skills and ways of thinking Employees may respect non-family CEO with experience over successor(s) who are not yet ready to lead	Difficult to find a non-family leader with the right skills and timeline

 

Non-family CEO (permanent): The owner(s) do not have a family successor(s), but wish to keep the business in the family. In this option, the family may establish a family advisory board and transition ownership to the next generation, but CEO responsibilities are transitioned to a non-family CEO. In this instance, a Family Office may be established where the family runs multiple business and philanthropic efforts.

Advantages	Disadvantages
Non-family CEO can introduce new skills and ways of thinking Successor(s) does not have to feel obligated to run the business if passions are elsewhere Business can stay in the family	Difficult to find a non-family leader with the right skills and timeline More opportunity for family conflict

 

This article is part of a series focusing on family business challenges in the construction and industrial markets. P&N is a full-service accounting and advisory firm with experienced professionals who can help family businesses succeed.

Contact us to start a discussion today.

Read Part 1: Family Businesses: What is Going On?

Read Part 3: Family Businesses: Change of Plans