Family businesses without heirs: Ways to ensure the legacy continues
Family businesses that have no clear heirs or successors can consider a number of options to ensure the continued existence of the business
Globally, family businesses are the backbone of economies worldwide, with a share of over 50% of the global GDP and workforce. They maintain a work culture that is unique to each family business and not comparable among themselves.
Family enterprise leaders usually want their businesses to remain in the family without setting up properly documented or communicated succession plans. But what if there are no successors or heirs to lead the legacy forward—will a growing or matured enterprise end its legacy with the expiry of its founder?
When family businesses find themselves without heirs to take over leadership, several options can be considered to ensure the continuity and legacy of the business while taking into account the age, health, and emotions of the founder of the business.
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One of the most straightforward options is to sell the business to an external buyer. This could be a competitor, a private equity firm, or an individual interested in acquiring a family business. A well-structured sale can maximise the value of the business and provide financial security for the family. But this option can run the risk of jeopardising the competency of the business, as the founder will no longer have any share in the business, and, of course, sharing his ideas or taking part in decision-making will also be a big "no."
Merging with another business can provide access to new markets, resources, and expertise. This option can help preserve the legacy of the business while ensuring its continued operation under a new leadership structure.
Transitioning the business to an employee stock ownership plan is an idea that can allow the employees to buy into the company. This can foster loyalty and motivation among employees, as they have a vested interest in the company's success. It also helps preserve the company culture and legacy. However, this could create future chaos due to a sudden increase in the number of stakeholders.
Creating a trust can help manage the business for future generations, even if there are no direct heirs. A trust can be structured to allow management by appointed trustees or professionals while ensuring that the business operates in line with the family's values and goals.
Bringing in a professional management team can help steer the company toward growth and sustainability. Experienced managers can provide expertise and direction, allowing the business to thrive without family involvement. Sometimes, this could increase the cost structure of the business, and the professional management may understand the business values but may not understand the cultural norms of the business.
In some cases, businesses may choose to transfer ownership to a community organisation or nonprofit that aligns with their values. This option can ensure the business continues to serve its community and adhere to its founding principles.
If the business model allows, franchising or licensing the brand can be a way to maintain the brand's legacy while also generating revenue. This option can expand the reach of the business without requiring direct family management.
If there are no direct heirs, consider involving extended family members or trusted non-family members who have been involved in the business. They may be interested in taking on leadership roles, ensuring continuity.
If the business is not viable for sale or transition, liquidation may be an option. This involves selling off assets and closing the business. While this is often a last resort, it can allow for the recovery of some value from the business.
Creating a legacy project could be an option to preserve the memory of a business. Some family businesses choose to create a foundation or legacy project that reflects their values and contributions to the community. This approach allows the family to maintain a connection to the business while supporting social causes they care about.
Each of these options has its own considerations, and the most suitable choice will depend on the specific circumstances of the business, its market position, and the family's goals. Consulting with financial advisors, legal experts, and succession planning professionals can help guide the decision-making process, but a legacy must not be stopped—it must be carried on to take care of those families who are depending on it. They are the ones who suffer the most if the legacy of a business is not properly ensured.
Dr Mohammad Naveed Ahmed is the Managing Director of Miyako Appliance Limited, Bangladesh and the first DBA from IBA, University of Dhaka. He is also an Adjunct Associate Professor at Independent University Bangladesh and a Joint Convenor at the Dhaka Chamber of Commerce and Industries.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.
