“Family businesses are like trees, they need strong roots and branches to withstand storms and keep growing.”

– Carlos Gomez

Family businesses are businesses that are owned and predominantly managed by family members. Building such a business is no easy feat. Family-owned businesses rarely withstand the test of time. It is seen that most family businesses go out of commission after the second or third generation. The lack of proper succession planning is one of the key reasons for this.

Succession planning refers to the seamless transition of leadership from one generation of the family to another. While this happens with ease for some family businesses, it is not the case for most. Family rivalries and other such internal and external emotional issues pose a major hindrance to succession planning. Sometimes, it is seen that the goals of one generation are not shared by the next, often leading to the descendants abandoning the business altogether.  There is also the question of choosing the right person to helm the business without any emotional bias. It is essential to have an effective succession plan to ensure the longevity of the business. However, family-owned businesses face a number of challenges when it comes to succession planning.

Let us have a look at the unique challenges family-owned businesses face when it comes to succession planning and the ways to overcome them.

Balance Tradition and Modernization

Through my consulting work, I’ve seen family businesses struggle with balancing tradition and necessary modernization during succession. I helped one family-owned manufacturing client overcome this by implementing a structured mentoring program where the next generation worked in different departments for two years before taking over, allowing them to respect tradition while bringing fresh perspectives.

Karl Threadgold, Managing Director, Threadgold Consulting

Create a Merit-Based System

In my restaurant business, I’ve seen how family dynamics can make succession planning incredibly messy, especially when multiple siblings want to take over the head chef role or management positions. What worked for us was creating a merit-based system where interested family members had to work their way up through different restaurant positions and prove their capabilities, just like any other employee would.

Allen Kou, Owner and Operator, Zinfandel Grille

Hold Regular Family Council Meetings

I’ve seen how family dynamics can complicate honest discussions about succession, particularly when multiple siblings or cousins feel entitled to leadership positions. We overcame this by implementing regular family council meetings where everyone could voice their aspirations and concerns openly. Additionally, bringing in an outside advisor to mediate these conversations really helped keep things professional and fair.

Gregory Rozdeba, CEO, Dundas Life

Set Clear Leadership Requirements Early

Modern family businesses face challenges when they aim to balance their emotional reasoning with their business-related succession planning decisions. Personal connections between family members create difficulties in selecting proper leadership because several family members desire succession. The result of such a situation commonly creates tensions between business stakeholders while introducing confusion about responsibilities, which has potentially adverse effects on business results. The decision process requires setting clear leadership requirements early on, which should be treated the same way as everyday business decisions.

I have noticed that businesses struggle when they think leadership roles must remain confined to family members, even though the most qualified candidate comes from outside the family unit. One company remained stable after introducing an experienced outside executive to supervise the transition process. The business requires leaders who serve its paramount interests ahead of family wishes. The combination of honest dialog, a formal succession strategy, and professional consultation helps prevent conflicts from disintegrating business continuity.

Joe Reale, CEO, Surplus Solutions

Establish Objective Qualification Criteria

One unique challenge family-owned businesses face in succession planning is the emotional entanglement between business decisions and family dynamics. When business leaders must evaluate their children’s capabilities objectively, emotional bias often clouds judgment, leading to succession choices based on family harmony rather than business needs.

To overcome this challenge, family businesses should establish clear, objective qualification criteria for leadership positions well before succession becomes imminent. Create a formal development process where potential successors gain experience in different areas of the business and even outside the company.

Consider forming a succession committee that includes non-family board members or trusted advisors who can provide unbiased assessments of candidates’ readiness. This external perspective helps separate emotional family considerations from business decisions.

Many successful family businesses also implement “earn your way in” policies requiring family members to achieve specific milestones before being considered for leadership roles. This approach validates the successor’s capabilities to both family and non-family employees, building credibility and smoothing the transition process.

Harmanjit Singh, Founder & CEO, Website Design Brampton

Implement a Phased Transition

Many founders struggle to step away from leadership, even when the next generation is ready to take over. Their reluctance to give up control can slow down growth, especially when new ideas and strategies are needed to adapt to market changes. The longer this hesitation continues, the harder it becomes for the business to transition smoothly, leading to conflicts between generations.

One solution is to create a phased transition where the outgoing leader gradually reduces involvement rather than stepping away suddenly. Establishing a mentorship period allows the next leader to gain confidence while the current one stays involved in an advisory role. This way, knowledge transfer happens naturally, and the founder can still contribute without holding the company back from evolving.

Shane McEvoy, MD, Flycast Media

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