As seen in Austin Business Journal, Dallas Business Journal, Houston Business Journal, and San Antonio Business Journal.

Family-owned businesses are the lifeblood of our economy. Whether small or large, first generation or fourth generation, they all face the same question. When the time comes to hand the business over to the next generation and preserve a legacy that has been built over time…can you? A family-owned business can take years, decades, even generations to become successful, but without proper succession planning, that business could collapse in the blink of an eye. One of the most common themes I hear in my practice when working with families is the desire to leave the business as a legacy for future generations. But what does that mean? Let’s address a few critical concepts that may provide some clarity and help you achieve that goal. Often, the business is the most significant family asset and provides cash flow and jobs for family members. It can embody family values, beliefs, traditions, identity, and a reputation that creates a lasting impact on the family, future generations, and the community it serves. So planning is integral for a successful transition.

Ensure the business can survive without the owners.

Long-term sustainability of a business occurs when the most important assets don’t walk out the door at the end of the workday. Be sure the inherent value of the business stays within the business, including client relationships, skillsets, institutional knowledge, best practices, standard operating procedures, branding, and the value of your service or product.

“Professionalize” your business.

By implementing sound corporate governance, establishing clear policies and procedures, and developing a strategic plan, you are setting the business up for long-term success. Create formal system of corporate governance by establishing a board of directors or board of advisors that includes non-family members or “independent directors” who can act objectively and hold management accountable. Management and directors will establish rules, processes, practices, and procedures that direct and control how the business is run. These guidelines can help mitigate risk in areas such as HR, a safe work environment, financial and accounting controls, and operations. Proper governance serves multiple purposes. It ensures that decisions made are in the best interest of the business and all its stakeholders, not just the owners, whose needs, particularly in the short-term, may conflict. Proper governance facilitates communication and accountability to all stakeholders, including employees, customers, suppliers, and family members who may be less active in the company. Another way to professionalize your business is to develop a strategic plan. A plan helps set clear goals, both long-and short-term, aligns the efforts of all the stakeholders in achieving those goals, and is independent of who happens
to be running the company at any one time. A good strategic plan includes components such as new product development, new services, geographic location or market, the competitive landscape, financial planning, and allocation of resources. Outline your desires for giving back to the community and charitable intent. Without a doubt, family-owned businesses have an impact on the community they serve. Instilling this belief and establishing the family brand within the community for future generations by including charitable causes and re-investing in the community as part of your plan will help strengthen the legacy you leave behind.

Engage the next generation.

It’s important to spend time and get the next generation involved, regardless of their desire to run the business. This exercise allows you
to see who may want to take over management of the business as you seek to pass it down. Educating them as to what the business has provided to the family and how its purpose, values, beliefs, and reputation are embodied in that business and the importance of continuing along that path for generations to come. Leaving a family business as a legacy does not necessarily mean the next generation has to run the company. Engaging the next generation will teach them responsibilities as owners so that they can continue the legacy themselves. By formalizing elements of your family business and passing the knowledge, experience, success, beliefs, and values down to future generations, you are creating a better chance for longevity and ensuring your legacy lives on.