Family businesses are a vital part of the Cayman economy, and the continuity and success of these businesses often depends on the transition from one generation to the next.
In the American economy, it has been found that less than one-third of family businesses survive the transition from the first to second generation, and of those that survive, half do not survive from the second to the third generation.
Poor planning is cited as one of the major contributors to such a poor survival rate of family businesses.
In addition to a business plan, family businesses should also have a family strategic plan – a plan that outlines the family’s role in the business and criteria for working in the business. Also important is a succession plan – a plan that outlines how succession will occur, and how to know when the appointed successor is ready.
From a planning perspective, you should be clear as to your reason for wanting a family succession versus another exit option, such as selling the business. Major factors to consider are:
• your financial needs and goals;
• the future of your business;
• the availability of qualified family successors; and
• the degree of involvement you wish to have with the business after your exit.
From a leadership perspective, you as a founder should be prepared to relinquish control without reluctance or regret. Sending a clear signal to your successor and family will help with a smooth transition.
Several other considerations for preparing from your eventual exit from the business are outlined below:
Grooming your successor
While you may have every intention to pass on your business legacy to an heir, the first consideration is if your heir(s) have an interest in being a part of the family business.
Simply because they are family also does not mean that they are immediately qualified to fill your shoes.
You should not only assess the qualities of your successor to ensure the right fit, but you should decide on appropriate training to ensure that they are prepared for the succession.
While you may desire your role in your company to come to an end, it is sometimes beneficial for you to stay on for an interim period to help guide your successor.
If this is the case, you should clearly establish your role and responsibilities after the handover, and set clear objectives and deadlines for when your involvement will come to an end.
Selecting a successor, especially when there are several potential heirs, requires that family members are brought into the decision-making process.
Building understanding and consensus are important so that internal family conflicts do not arise and that the successor has the full support from the rest of the family.
Managing employee expectations and preparing them for the change in management is also needed to ensure a smooth transition. A business’ employees are an important resource, and ensuring that they are not threatened by the change will help to lower anxiety and maintain morale and motivation.
Bearing in mind that emotional ties and business ties often do not mix, it is often helpful to seek the advice of a neutral outside advisor.
It is also useful to use planned family meetings to create trust and understanding as the business’ plans are developed and finalized.
While family businesses certainly have additional challenges that they often must face, this by no means is an indication of constraints to their ability to grow and succeed. After all, with examples such as the Ford Motor Company, it is clear that a family business does not have to be a small business.
Dr. Dax Basdeo has several years’ experience as an economist in the civil service, and is currently the Executive Director of the Cayman Islands Investment Bureau, a Government agency that focuses on issues relating to business development and inward investment. He holds a B.Sc. in economics from the Wharton School of Business, a MBA from Manchester Business School, and a Ph.D. in Strategic Management from the R.H. Smith School of Business. A published author, his research focuses on the actions that firms take to impact performance and the discovery of innovative business opportunities.