Family Business: 5 Tips for a Smooth Succession Plan

Passing the leadership torch successfully is a tricky issue in any business, but it can be particularly difficult when you're counting on your own flesh and blood to keep it burning bright. And the bigger the generational spread, the harder it is to keep a business going. According to the Family Business Institute, the odds a business will make it into the second generation are only about 30 percent, for the third generation it drops to a mere 12 percent, and it falls to three percent for the fourth.

That said, plenty of businesses get carried down the family tree and thrive. Check out these tips for creating a plan to keep your business running smoothly as you pass it to the next generation, from families who have done it.

1. Think long term
"Plan ahead, and plan early," says George Lynett Jr., a co-CEO of the Scranton, Penn.-based media company Times-Shamrock Communications, now run by its fourth generation. Passing control of a company from a parent to a child can be complicated enough, but passing it from four siblings to a bevy of cousins required years of planning. The third generation started to develop a plan when they were in their 50s, and the whole process ended up taking about eight years.

Tom Hofer had a less tricky transition to plan for when he passed control of his Illinois-based Spring-Green Lawn Care to his son, Ted, but even so, he developed a five-year transition plan to make sure that Ted was ready to lead the company -- and that he was ready to let go. "By the time that came it wasn't too big of a jump for him," Ted says. "He's been giving away his responsibilities slowly after five years."

2. Cycle the next generation through the ranks
As part their transition plan, the Lynett family developed a six-year training program for members of the next generation who wanted to be a part of the company management. Interested cousins must earn a graduate degree, spend a year as an intern at an outside media company, and then complete a three-year rotation in the company, with a year at a newspaper, a year at a radio station and a year at an alt-weekly. It's a tough requirement, but it guarantees that members of the fourth generation are committed to and ready for management positions.

When Ted agreed to take over Spring-Green for his dad, he hadn't worked at the company since college. To get back in the swing of things, he spent two years managing support for new franchise owners, then another two running company-owned franchises in the Chicago area. At the end of four years, he had experience in both sides of the business, but more importantly, he had time to earn the trust of his colleagues. "Everyone knew who I was regardless of whether I'd worked there," he says, "but they didn't necessarily know what I was made of, and what I'd be like on a day-to-day basis."

3. Add an outside perspective
When the time came to build their complicated transition plan, the Times-Shamrock Company looked to outside consultants, who helped them manage the communications of family members, develop their management training program and set up a family structure. Now, all the cousins over 18 and their spouses are part of a family assembly, which meets annually for structured meetings that explain where the company is, and what's coming for the year ahead. There's also a 12-member family counsel, composed of the four sibling owners and two members from each of their families, which performs functions almost like a board.

Complicated enough for you?

"It's involved but it really had to be done," Lynett says. "If we didn't have a clear plan for us coming back into the business, it would have been a mess."

Plus, having an outside perspective helps the company evaluate new ideas, which can be tough when proposals are coming from your kid brother.

"When I say something that I think is a clear business model, I'm just a cousin with an idea," he says, "but when the consultant brings validity to it, people will pay attention."

4. Leave room for other employees
If you're a big enough business to have employees who aren't part of the family, it's key to make sure they don't feel like nepotism is going to put an end to their upward mobility. To combat that, Times-Shamrock identified all of the top management positions at the company, and made a a rule that family members could occupy no more than 25 percent of them. "You don't want managers to think they have no job security," Lynett says.

5. Stick to the plan
One of the biggest problems families face with succession is when the owners aren't ready to let go. Once you have a long-term plan in place, you really shouldn't deviate. "As much as I know that's been a struggle for my dad internally, he's really never let it show," Hofer says. "The fact that we stayed on that path made it easy from my perspective."

Read more about family business:

• 5 Myths About Family Business
• What Happens When Parents Won't Let Go of the Business
• How We've Kept Our Company Running for Six Generations