Business, when looked at from an individual’s perspective, is simply a business. When we speak of business, we consider businesses such as hotels, restaurants, stores, etc. However, the word ‘business’ encompasses a much larger field of organizations and activities. A business can be run by one person or comprise many individuals, each with their unique skill, talent, or skill sets.
To understand the business (and its importance), we need to consider its various elements – management, business planning, succession planning, ownership, control, etc. A family business is generally a large commercial organization in which decision-making is primarily influenced by several generations of a family, usually related by marriage or blood, who collectively have both the skill and the authority to influence the direction of the business. This is in contrast with the organization in which the owner controls the day-to-day running of the company. The owner is usually called the principal, but sometimes the CEO (Chief Executive Officer) or CFO (Chief Financial Officer) is also called upon to lead and manage the business. This is not dissimilar to the situation in a government organization where directors of a corporation take responsibility for the company’s management and affairs.
Since succession planning and the selection of leaders are critical to the long-term profitability of a family business, it is worth looking closely at the role of the CEO or CFO concerning succession planning. For a CEO, succession planning must involve looking beyond his immediate direct involvement with the running of the business to looking at his skills and qualifications for leadership in other areas. In addition, the CEO needs to consider whether he has the character, ethics, and personality required to lead a team of people who will be his successors, either immediately or later down the line. There are many instances where CEOs have gone on to lead their family businesses successfully, so it’s not just a question of ability.
We should also remember that the head of an organization has two primary responsibilities. They should be in charge, so the question of what should happen to the family business after the CEO is gone is often a difficult one. Some scenarios may result in the need for succession after the CEO has gone. One such technique is where the business has excellent growth potential, but the owner dies or becomes incapacitated. Many different situations can result in the need for CEOs to look to their family businesses for help. If, for example, the industry is in a rapidly growing sector, it may become necessary to find a CEO with extensive leadership skills who can take over the company’s running when its current CEO is unavailable.
In situations where the CEO has died or is incapacitated, some options are available to the family members of a family business. One of the most common scenarios that may result in the need for succession after a CEO has gone is when one of the family members becomes very knowledgeable about the business. This can occur if the family member is chartered or trained as an executive. The ability of this person to run the business or the company in an administrative capacity after the CEO has gone can be precious.
Another option that some family businesses (and other types of companies) may find themselves in is the ownership structure. Many family businesses (and different kinds of companies) are run by founding members, meaning the business itself is run from the home of the founder’s residence. Some newer business models that are being developed today incorporate a “hybrid” or “socially responsible” ownership model. This hybrid model involves members who are co-owners of the business. This type of ownership structure can be highly beneficial to the long-term success of a business.
One thing to note is that although the emotional connection to your business is essential, it should not be the driving force behind your decision to sell your business. Although owning and managing a company can provide a sense of fulfillment, the true motivation for most people comes from within the industry. Whether you decide to sell your business because you no longer have any use for it or because of financial distress, it is essential to have a plan with a clear objective. You may want to retain control and continue to run the day-to-day operations of your business, but you must develop a strategic plan with realistic and achievable goals.
Finally, it is essential to note that many family business owners and entrepreneurs choose to maintain control of their businesses through a limited liability company. This allows family members to retain ownership in the industry while also being protected if they act negatively towards the business. A limited liability company can provide many advantages to business owners and family members. However, this option can also be detrimental to long-term success if family members do not act responsibly. For example, if family members misuse the assets of the LLC, the company may be financially ruined as a result.