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When should you begin discussing the business with your kids?

The question of succession is an emotional and challenging one for every family-run firm with an eye on the future.

We sat down with Barry Goodman, Managing Director of Birkdale Transition Partners, to discuss the ins and outs of entrepreneurial vision, succession, and next-generation family leadership.

How is a family business distinct from a privately-held business?

“It’s important to delineate the difference between the two: privately-held corporate companies are known for their well-established internal structures, whereas family-owned businesses tend to have more flexible structures.

They are distinctly different models and governance philosophies. Family-owned businesses take a long-term view and focus on building longevity through continuity, sustainability and planning for the next generation. Privately-held businesses take a short-term view and often build to sell; in other words, they build value through growth”. However, they share one common characteristic – the need for a highly-qualified senior management team.

When in the lifecycle of an enterprise is it best for an entrepreneur to consider becoming a family business?

The family’s unique goals and values should determine when family members get involved. Generally speaking, the next generation will begin to take on the family values at a young age.

To better examine this question, it is useful to look at the definition of a family business. Many definitions exist, but a widely accepted one is:

❖ The majority of the votes, direct or indirect, are in possession of the founder, those who have acquired the shared capital of the firm, or their family members, and

❖ At least one representative of the family is involved in the management and administration of the firm.

The presence of generational change and the intention of transferring the firm to a family member should also be considered. This moves the definition beyond ownership, management, and control components and embraces the essence of the family business and their intended continuity of ownership.

Family-owned companies change and evolve along with family members and family values, and this deep connection to family values typically leads to a very strong company culture.

Another way to consider the family/private business ownership question is the way in which risk and job role is approached:

❖ Family-run companies strive to ensure corporate health and continuity, exercising careful stewardship over resources and encouraging long-term executive apprenticeship and tenure. Succession planning is a core function of this process. Family business leaders develop strategies and goals to equally benefit the family, business, and self.

❖ Family-owned companies usually have a shorter chain of command than a privately held business, and employees of a family business must be prepared to have multiple roles and responsibilities.

❖ In a non-family business, your role will likely be very well defined. You will know where your responsibilities lie, and which ones belong to other members of your team. Typically, you will also have a straightforward job title.

It is also wise to discuss career pathways – non-family or private corporate career pathways are usually pretty set within the context of the company's existing structure. In a family-owned business, you are more likely to find an “open” career path.

Family-owned businesses are also known for highly valuing relationships, including with employees, customers, vendors, and their community. Strong relationships are the foundation of their success and sustained growth.