Family Businesses
Handing Down the Management of the Family Business to the Next Generation
In Turkey, 95% of the companies are family businesses. The average lifetime of such a company is 25 years. 30% of the family businesses are handed down to the second generation, 12% of them are handed down to the third generation, and only 3% are handed down to the fourth generation.
The importance of family businesses in the global economy has been gradually increasing. It is expected that 40% of the major companies around the world will be family businesses by 2025.
Currently, family businesses have two major issues: Handing down the management to the next generation, and institutionalization.
A family business should broaden its perspective, be positive and solution-oriented, manage its sources effectively, and follow the latest developments and transform accordingly to maintain the business.
Handing down the management of the family business to the next generation is the most important issue in maintaining the business successfully.
Family businesses usually look like they have complicated and complex cultures. Besides, families are gradually becoming more complex and more untraditional.
There are five fundamental issues that hinder the success of family businesses.
- Handing down the management to the next generation: Only one out of three family businesses successfully hands down the management to the second generation. A well-planned handing down process can be useful.
- Harmonization of family expectations: Harmonization of family members’ expectations becomes very critical when founder members decide to retire from business and to hand down the management to the younger generation.
- Balancing financial gains: It is hard to prepare share transfer agreements. Older members tend to check numbers in balance sheets. However, income capitalization approach is the type of appraisal method used mostly to estimate the value of a company.
- Disputes between family members: Some family members may have claims different from other members. The business owner’s death, divorce, and the presence of heirs who do not play active roles in the business but have right of vote etc. can make things even more complicated.
- Real estate and inheritance issues: These include inheritance tax and other issues that may arise after the death of the owner of a family business.
Solution in 5 Steps: These issues can be solved with a good focus and planning in 5 steps:
Step 1: Determine Your Purpose and Goals
State the company’s vision, mission, and objectives.
Step 2: Enable a Decision Making Process
Create management processes to involve the family members in the decision making process.
Step 3: Make an Assignment Plan
Identify the prospective next generation members of the board of management and executives.
Step 4: Set Out Business Assets and Personal Properties
Evaluate and estimate the potential impacts of the expenses and taxes that may arise due to sales, death, and divorce etc. on the company and members.
Step 5: Plan a Transition Process
Plan a transition process for natural transfer of shares or transfer of shares by inheritance, or for both.
Many family businesses fail and disappear, due to family members who have unusual expectations and deprived of the necessary skills and experience to manage and expand the business. You can save your money and time, and secure and maintain the success of your business by following the above given five steps before it is too late.
