All business owners need to plan for their exit, ideally well in advance of when that might happen. Not only does it build trust in your leadership, but it also sets the stage for a strong financial strategy before you leave.

But family businesses can face more complex challenges with exits than other types. Passing down a family business is something a lot of CEOs dream of doing, but it can also be fraught with complications, emotions, and poor decisions.

Why you need a formal succession plan

It’s a little dark, but there’s an old adage that says the first generation builds wealth, the second generation spends it, and the third generation loses it. It’s certainly not always true, but when it is, how does it happen? 

One of the top reasons (and biggest mistakes) we see is not having a formal exit plan. In fact, a 2023 PwC survey of family business leaders showed that while 72% of respondents said they want the business to stay in the family, more than a third (36%) have no will, no entry and exit provisions, and no emergency or contingency plans.

In the case of any of the five D’s of succession planning — death, divorce, disability, distress or disagreement — lacking a formal, documented plan means your family members can be left in a distressing, compromised position. 

Adding to the complexity of passing down a family business, interpersonal relationships among the family members (even those who aren’t involved in the business) can complicate the very nature of what a transition or exit might look like.

Conflict isn’t unusual in a family business — 30% of the PwC survey’s respondents said they’ve had disagreements about the business and 22% say those disagreements make it hard to build trust throughout the company. The trust of your employees is crucial to your success, so it’s best not to let conflicts get out of hand.

That’s why a formal succession plan is a must for a family business. You need to be able to navigate situations in which:

• The unexpected (especially death or disability) happens.
• Members of the next generation want to play different roles in the business than you expected.
• No one is able to or wants to continue running the business.
• You, as the owner, are having a hard time letting go as the business succeeds to the next generation.
  
  

How a Fractional CFO supports your family business – before, during and after you exit

If you’re one of the 72% of leaders who wants your business to stay in the family, engaging a Fractional CFO to help guide you in your succession planning is a wise move, starting two to five years before you plan to transition the business. 

Before

First, the preparations you make for succession are just good business anyway, including understanding cash flow and profitability and ensuring you have a professional accounting system in place. Many family businesses rely only on a bookkeeper to manage their financials, often missing strategic operational and financial opportunities without a CFO to guide them.

Second, having clear, concise and accurate accounting records that everyone can understand makes it much easier to determine what a company is worth — and how that valuation is established. Evaluating the business monthly is a must to keep everyone on the same page. 

During

A Fractional CFO, armed with hard data and deep, diverse financial leadership experience, is an objective, neutral party that can help calm many stressful situations. They can be part of the key operating management team through a transition to advise all family members and maintain consistency for employees, vendors and customers. Your Fractional CFO will be there to tell you what you and your successors need to hear — not just what you want to.

If the family members taking over aren’t quite ready to do so, a Fractional CFO can also help them navigate the process of finding short-term financing through a minority owner who wants to help the business continue until the next generation is ready.

After

I’ve found that many first-generation business owners underestimate just how much they know about the industry, the business and their clients and fail to pass it on thoroughly to their successors. Even if the next generation of owners has been by your side all along, it’s different to sit in the captain’s chair, answering to the bank and creditors and making the tough decisions.

It’s a new level of pressure, and the right Fractional CFO for you has been through this before, either as a CFO or as the business owner themselves. They’ll make sure the financials stay accurate and consistent, even if other areas of the business have a tougher time with a transition.

A Fractional CFO supports and coaches the next generation by performing deep financial analysis, modeling and forecasting as they explore where they want to take the business. Having an experienced, consistent voice of reason is crucial for those taking over the business to ensure that their new ideas have the financial strategy and data to support them.

Crown CFOs have the experience to guide your succession plan

If you’re looking for executive-level expertise as you create a succession plan for your family business, there’s a Fractional CFO from Crown CFO who has the background and experience to help you do it.

Contact Kerry George at kerry@crowncfo.com to bring a trusted, expert Fractional CFO to your business.