Succession in the family business: a decisive step forward

Do you run a family business and want to retire? Succession in a family business is something you need to plan very well if you want to guarantee the continuity of the business in the future. What do you need to do to avoid problems? We tell you all the details in this post.


What steps can be taken for the succession of family businesses?

In Spain, several studies have shown that the succession of family businesses becomes more complicated after the third generation, as in only 2.6% of cases is the company in the hands of the fourth generation.

“According to data from the European Commission, 450,000 family businesses have dealt with family succession in the European Union, but of these, only 150,000 have passed on to the second generation, with 600,000 jobs being lost. Only 7% of family businesses reach the third generation”, according to Ramón Tejedor, managing director of the Aragonese Development Institute, during his speech at the Presente y Futuro de la Empresa Familiar en Aragón business conference, organised by “elEconomista” in Zaragoza with the sponsorship of CESTE, Credit and Surety and Ibercaja (news published in the newspaper “elEconomista“, on 20 April 2017).

In order to prevent family companies from disappearing or ending up in the hands of third parties, it is necessary to plan the succession and the following measures can be taken:


Drawing up a family protocol

The family protocol is a document that regulates important aspects such as company management, governance, organisation, assets and succession.


Election of the successor

One of the most important aspects to ensure the continuity of the business is to choose the successor of the founder or the family member who is in charge of the family business. This may be a third party outside the business or one of the founder’s descendants. In any case, it is necessary that he or she is familiar with the business, is trained to run the company and builds confidence in the staff before taking over the company. Provision should also be made for what happens in the event that the founder or the person running the company becomes ill or is otherwise unwilling to continue to run the company.


Choosing the right time for succession

Choosing the right moment to hand over the family business is also a very important step. Some founders want to disengage from the business altogether, others want to retain some control. There is also the possibility of deciding to sell the company, especially in cases where the founders have no descendants.


Involvement of an external consultant

Even if the succession of the company is planned, conflicts may arise within the family and, therefore, within the company, so it is advisable that, both for the drafting of the family protocol and the management of succession and mediation in family conflicts, it is carried out by an external and objective advisor who has experience in this type of process.


Creation of a Family Council

Together with the family protocol, the creation of the Family Council is another essential element for the company to last. It is a body that can develop a series of actions in relation to the succession of the family business, such as: developing the training of future leaders, monitoring relations between the family and the company, as well as resolving conflicts in relation to succession.

In short, the succession in the family business must be peaceful, planned and guarantee the continuity of the business and the transition from one generation to the next.