Preparing the Next Generation: Three Tips for Keeping Your Business in the Family

Key Takeaways:

• Understand your children’s abilities and desires before including them in the family business.
• Keep business and family matters separate as much as possible.
• Carefully define roles, responsibilities and authority to avoid conflicts between family and non-family employees.

Many family businesses start with the intention of staying “in the family.” Meaning, the parent or parents who build the business, do so with the hopes their children will one day take over its management. The founders often see a family business as a way to establish financial security for future generations. However, the vision of the older generation doesn’t always align with the vision of the next generation. This can lead to well-intentioned, but unsuccessful, family businesses. The children may want to eventually take over the operations but have different long-term business goals than the parents. Or the children may not want to be involved in the business at all. Either of which could cause conflict. Integrating children into day-to-day operations or promotions to management is a major undertaking. One that requires careful planning and clear communication. The positive aspect is that there are methods to equip the next generation, and the business, for a smooth management transition. 

Here are three tips for involving children in your family business:

Communicate Early and Often

As eager as some parents are to incorporate their children into the business, the children themselves may not be as enthusiastic. For the transition of management from parent to child to be effective, both parties must agree to the responsibilities and expectations of their roles. Transition planning starts early and is discussed often. Having a clear picture of that plan helps ensure the changes are in the best interest of all stakeholders. Open communication enables everyone to voice their thoughts and feelings before the business changes hands. Over time, your children’s perspective on the business may change. Regular discussions eliminate surprises for both parties down the road. Talking about the future of the business in terms of goals and direction gives both parents and children a chance to plan and work together for a successful transition and sustained longevity. 

Clear communication and early planning are important when involving children in a family business to ensure a smooth management transition. 

Separate “Boss” from “Parent”

Every parent’s job is to parent and that doesn’t stop when your children become adults. But as a business owner, and the boss, it’s your job to run the business; that means taking off your “parenting hat” when it comes to business matters, even when your children are also your employees. In reality, this is a difficult task– you will always see your children more as family than business partners or employees. However, separating the relationship in work settings can keep conflicts and disagreements at bay. For example, you may want to micromanage your child because you feel you know them best. But for the good of everyone involved, your children should be treated the same as any other non-related employee. They need to learn the ins and outs of the business, as well as decision-making skills and independence. This is especially important if you are grooming your child for a leadership role.

As a leader, they will experience all the pressures of business ownership, from the highs to the lows and everything between. That doesn’t mean you have to let them fail– you can still provide guidance, wisdom and support while also allowing them to work through challenges on their own. Prepare them from the start. After all, your goal is for them to run the business without you someday. 

Separating the relationship between parent and child when it comes to business matters is crucial in avoiding conflicts and disagreements. 

Determine the Business Structure 

Every company needs to determine its internal structure and family businesses are no different. The structure serves as an objective reference point, solidifying roles and responsibilities previously agreed upon by both parties. It also establishes reporting hierarchies, as well as limits on individual authority. Understanding the specifics of their position will help mitigate conflicts between family employees and non-family employees. Using the structure as a guide, the children can better learn the requirements of each role and how to work cross-functionally, eventually discovering their strengths and passions in the context of the family business. 

Defining an internal structure for the family business can help guide children and prevent conflicts from arising. 

How Comerica Can Help

Preserving your family business often involves bringing your children into it. And, more commonly, having them take over the leadership roles in the company. When planning for these transitions, it's important to consider how all aspects of business and wealth management may be affected. Working with Comerica Bank can help connect owners with expert services and tools for succession planning and wealth management.

Schedule your 30-minute assessment with Bob Buchanan today.