Family Business Succession Planning: It's Time to Wake Up

The moral of the story is simple: we all love stories. Not just children, but adults too learn from them. And those who fail to learn, suffer the consequences. Let's begin with some timeless epics.

In the Ramayana, Queen Kaikeyi’s desire to make her son Bharat the successor of King Dasharatha led to Ram’s Vanvas (exile). Without this episode, there would have been no exile and no Sita Haran (abduction of Sita).

In the Mahabharata, the complex issue of succession triggered the Kurukshetra War. Without the succession conflict, the war wouldn’t have occurred. The Mahabharata teaches many lessons about succession—whether in business, kingdoms or even political parties.

The inability to address succession issues in a timely and strategic manner is one reason why a once-dominant 100-year-old Indian political party is now struggling for survival.

Succession challenges have affected nearly every family-run political party and have even led to the split of India’s largest family business, the Reliance Group.

These public examples are well-known, but there are countless small and large businesses facing similar issues. The failure to plan succession properly and on time is destroying enterprises that were built over decades with struggle, hard work, and passion. This happens when we don’t learn from history.

Why Are Ramayana and Mahabharata So Popular?

Of course, it’s partly because they feature our revered figures, Lord Rama and Lord Krishna. But the second reason is that succession issues are universal, affecting every family in some way, making these epics relatable across generations.

Recently, I spoke to four small-to-medium-sized (SME) business owners, all in their late 50s or 60s, who haven’t planned their succession:

1. Firm A is a partnership business. One partner has two married daughters who are not trained to take over, while the other partner’s sons are settled in the US.

2. Firm B’s owner has a daughter, but she is still in school.

3. Firm C is another partnership firm. One partner’s son lives abroad, while the other’s son works in an IT company in India with no interest in the family business.

4. Firm D is a sole proprietorship. The owner’s two daughters are married and have successful careers, but they are not interested in the business.

This is one reality. On the other side, many businesses face the challenge of multiple potential successors, making it difficult to choose the right one.

Regardless of which scenario you face as an entrepreneur, one thing is clear: planning for succession is critical. It must start well before the retirement age of the founder(s). Natural events like death or illness can disrupt businesses, making it impossible to follow retirement plans.

Why Is Succession Planning So Important?

Planning in advance, documenting the succession process, preparing for different scenarios, training potential successors, defining roles and responsibilities, and involving external professionals all require thoughtful and meticulous preparation.

Unfortunately, most SME entrepreneurs are too busy with day-to-day operations to focus on this important responsibility. As a result, many SME successions are left to chance and poorly executed.

According to a Deloitte report, the following reasons often delay succession planning:

- Uncertainty about where to start or who to consult.

- Concerns about fairness to potential successors.

- Struggles to retain valuable employees who aren’t in line for ownership.

- Reluctance to discuss financial matters or personal goals.

- Unwillingness to retire.

- Difficulty stepping back from daily operations to focus on long-term planning.

- Fear that successors are not ready to assume control.

- The perception that the process is too overwhelming or costly.

This mindset often leads to avoiding or postponing succession planning. However, every entrepreneur must recognize that aging and death are inevitable, and so is the need for a succession plan.

The Consequences of Indecision

Failing to plan for succession can harm businesses in many ways:

- The business may lose value as owners age and lose agility or interest.

- Sudden life events can paralyze or close the business.

- Key employees might leave due to uncertainty about the future.

- Litigation may arise among the next generation.

- Business divisions could split, reducing competitive advantage.

Factors to Consider When Choosing a Successor

Succession issues similar to those in the Mahabharata are widespread:

- Should you choose professionals or a legal heir?

- Should the eldest heir take over, or the most competent one?

- Sons vs. daughters?

- Should management and ownership be separated?

Omar Al Handal, Managing Director at Al Handal International Group, wisely said:

“Instilling in the next generation the family values and a sense of collective pride in the mission of the business is fundamental to future engagement.”

Succession Planning Checklist:

People:

- Family culture

- Management structure

- Defined roles and responsibilities

- Feedback from key employees

- External talent

- Governance structure

- Conflict resolution mechanisms

Business:

- Business valuation

- What to fix before handing over

- What to retain and exit

- Contingency plans

Taxes:

- Tax-efficient exit and distribution structures

Security:

- Family Office

Timeline:

- When all of the above should happen.

Succession Options:

- Succession to heirs with ownership and defined roles.

- Succession by splitting business divisions among heirs.

- Succession to non-family professionals while retaining family ownership.

- Succession to key employees.

- Total exit.

Key Questions for Business Owners:

- Do your children know your plans for transitioning the business?

- Do they have the experience and skills to manage it?

- Have they earned the respect of key employees?

- Have you discussed the timing and plan with them?

- Are you supporting them both privately and publicly to ease the transition?

Key Questions for Heirs:

- Have you identified the skills and experience you need to manage the business?

- Have you had an open discussion with your family about the transition?

- Have you shared your vision for the future of the business?

- Have you earned the respect of key personnel to lead effectively?

Who Can Help?

- A trusted family advisor for guidance on big-picture decisions.

- A financial advisor or CA for understanding tax implications.

- A lawyer to prepare the necessary documents.

- An investment banker if you plan to sell the business.

In conclusion, succession planning is vital for the continuity and survival of any organization. This applies not only to family businesses but also to professional firms and political entities.

Succession planning isn’t about losing control; it’s about preserving a legacy and retaining value. As John C. Maxwell said, “A leader's lasting value is measured by succession.”