Ensuring the sustainability and development of a family business is a real challenge. Indeed, in this type of business, the transmission of this heritage to the next generation often creates tensions that undermine family balance and, ultimately, the stability of the organization.

Moreover, INSEE statistics confirm this trend, since approximately 70% Of family holdings do not survive the transition to the second generation while only 12% reach the third.

Why is maintaining a family business such a challenge?

To answer this crucial question, this article first explores the characteristics of this type of business, its strengths and weaknesses, then proposes strategies for successfully maintaining a family business, between respect for the founding values and innovation to adapt to new economic requirements.

Definition and characteristics of a family business

A family business is distinguished by the active involvement of one or more families both in its ownership and in its management. But more precisely, three essential criteria make it possible to define this type of business:

1. 50% property rights must be held by the family.
2. At least one management or executive function must be occupied by a family member.
3. The desire to pass on the business to children, grandchildren or other family members must be predominant.

In addition, these companies are characterized by a long-term vision and a strong emotional attachment.

Note: to facilitate the transfer, certain tax systems such as the Dutreil pact make it possible to reduce inheritance costs under certain conditions. This donation system promotes continuity by reducing tax burdens during intra-family transfers.

However, to guarantee the success of the transmission, rigorous preparation is essential, because A family business combines strengths and weaknesses.

How does family governance influence the sustainability of a business?

The governance of a family business has the particularity of being structured on three levels of responsibility:

1. Family members : they can be shareholders, managers or simply involved indirectly. Their emotional commitment and influence on strategic decisions can either strengthen the business or create tensions if roles are not clearly defined. The creation of bodies such as family councils encourages dialogue to clarify everyone's expectations. Such a precaution also makes it possible to defuse potential conflicts.
2. The board of directors : this structure plays a central role within any company, defining strategic directions, overseeing management and ensuring that the economic interests of the company are respected. A balanced composition between family members and external directors is essential to bring an objective perspective to decision-making.
3. Operational managers : these members of the management and these managers ensure the daily management of the company and the implementation of the strategies adopted. When these leaders come from the family, it is crucial that they are prepared and competent to meet operational challenges. Among the solutions to be explored: the integration of external managers can also be useful by providing complementary expertise, a guarantee of better stability.

What to remember: effective and transparent governance is essential to overcome transition periods, anticipate potential succession conflicts and ensure the sustainability of the family business.

What are the advantages of a family business?

Family businesses have several advantages that can contribute to their success and sustainability.

A rare degree of motivation

One of the major assets of this type of company lies in the determination and commitment of family members to make their business grow.

Indeed, this involvement is often stronger than in other structures, because the company then represents not only a source of income, but also a family heritage to be protected. This emotional bond reinforces the desire to maintain, and even to make the business prosper over the long term.

Enviable managerial and financial stability

Another significant advantage is based on the stability of management and capital.

Unlike businesses where shareholders can withdraw quickly, family businesses have a long-term vision, as family members generally seek to pass the business on to their descendants.

This managerial continuity allows them to develop a long-term strategy rather than aiming for immediate gains.

A continuous transmission of experience

The transmission of knowledge and skills is also a key asset. Indeed, the older generations directly train the younger ones, transmitting to them valuable knowledge about the specificities of the company and the fundamental values of the company that they want to see preserved.

This continuing training encourages gradual adaptation to taking up a position and ensures a competent and committed succession.

A solid and lasting reputation

Finally, family businesses often enjoy a reputation for reliability among their customers and partners. This positive image is the result of strong values shared within the family.

What are the specific sustainability challenges for family businesses?

Family businesses, although they have many assets, face significant challenges when it comes to ensuring their sustainability.

The risk of sclerosis

One of the main obstacles is the risk of immobility, often linked to differences in vision between generations. The oldest members, who are strongly committed to the history and founding values of the company, may have difficulty taking a step back or considering major changes.

They generally prefer to preserve the methods in place. On the other hand, younger generations often aspire to dust off the business, to integrate new technologies or to adopt a more innovative strategy.

However, this tension between fidelity to family traditions and the desire for renewal can hinder the evolution of the company.

The threat of discord

Another major challenge concerns the risks of internal conflicts. Managing a family business is not limited to economic considerations: it also involves complex emotional relationships.

Disagreements about daily management, strategic decisions, or the distribution of responsibilities can escalate into family tensions. These conflicts, if not managed effectively, can weaken the business.

In fact, more than two-thirds of family businesses go bankrupt, largely due to these family disputes.

Legal and fiscal complexity

Finally, the issue of succession represents a crucial issue for the sustainability of this type of organization. Too often, their members do not prepare sufficiently in advance for the management transition, which can lead to a period of instability when the previous leader leaves.

However, the absence of a clear succession plan can cause rivalries between heirs or a loss of strategic direction.

To ensure their sustainability, family businesses must therefore carefully plan for succession in order to guarantee the continuity of the business over several generations.

Best practices to ensure the sustainability of a family business

Sustaining a family business is a complex challenge that requires preparation and fluid communication between generations. To ensure this continuity, several best practices must be put in place:

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Protect the company against hazards

An essential first step is to anticipate the risks and potential challenges associated with transmission.

Ensuring the protection of the company against hazards is a priority. This requires the establishment of a solid business plan, but also appropriate insurance, as well as the integration of protection clauses in legal acts.

Diversifying activities also makes it possible to reduce the risks associated with a single economic sector.

For example, taking out life insurance for the manager guarantees immediate liquidity in the event of a sudden disappearance, thus offering financial stability to the company and avoiding a possible blockage in the transfer.

Preparing for the transmission

La Transfer of the family business cannot be improvised. A manager who cares about the future of his business and his employees must plan this transition carefully.

It is not only a question of ensuring continuity, but also of allowing evolution through the emergence of innovative ideas. This transmission conditions not only the preservation of a heritage, but also the success of a lifetime project.

Preparing for tax changes

Taxation represents another crucial issue in the sustainability of a family business. Regulations change regularly, and it is essential to stay informed of changes in order to optimize the transfer of a business.

Consulting a specialized tax specialist makes it possible to anticipate the effects of these developments, in particular on arrangements such as the Dutreil pact, which offers tax advantages for business transfers. Good tax planning thus ensures the viability of the company in the long term.

Get inspired: case studies and testimonies of sustainable family businesses

The oldest and most widespread form of business organization in the world, the family business occupies a major place in the economic world. These can be small structures as well as larger businesses.

In France, we count between 40,000 and 50,000 family businesses, some of which have a long history, spanning more than 3 generations. If among them, there are prestigious family holdings such as L'Oréal, LVMH or the Carrefour group, it is good to know that two thirds are very small businesses.

While you can, of course, be inspired by big names, you can also discover customer cases and testimonies of the sustainability of family businesses, such as that of a manager who successfully took office at the head of her family's company in the agricultural sector.

Communicate

Effective communication is an essential tool for the prevention and resolution of family conflicts. Establishing open communication strategies, using family mediation and establishing clear family pacts are relevant solutions.

For example, a family pact can precisely define the roles and expectations of each member, thus avoiding misunderstandings.

In this context, the family council plays a fundamental role. Comparable to a board of directors, it offers a space for discussion on major corporate issues. Its mission is twofold: to ensure the sustainability of the company while maintaining family harmony.

It includes both active members and those who do not occupy a position in the company, thus allowing everyone to have a voice. The more inclusive this council is, the more it reinforces the sense of belonging and empowerment of members.

Its composition may change over time in order to maintain its effectiveness and its impact on corporate governance.

Ensuring fairness

Equity between members is another pillar of quality governance. It is essential to ensure a fair distribution of responsibilities and the involvement of independent directors who are able to provide an objective external perspective.

Moreover, gender parity and the diversity of profiles are key factors for modern and effective governance.

Innovate

Innovation and adaptability also play a crucial role in the longevity of family businesses. It is not enough to perpetuate a vision; it must also be enriched and evolved in line with new market realities.

This intergenerational dialogue makes it possible to create a collective identity and to chart a sustainable path for the future. The implementation of modern tools, such as the digitization of certain functions, improves efficiency and management.

To be trained

Finally, the training of successors is a key element in ensuring an effective transition and guaranteeing the sustainability of the family business. Because the transfer does not only concern capital, but also involves helping the new manager to find his place and to take office legitimately.

It is therefore strongly recommended to encourage them to develop their skills as a buyer, for example, by following personalized coaching.

Highly aware of these issues by the entrepreneurs who make up our pool of coaches, VISCONTI PARTNERS offers tailor-made support to help family members overcome the challenges they face as future managers, while strengthening their leadership skills.

Because, as we have just pointed out in this article, the sustainability of a family business is not self-evident and requires careful preparation.

However, coaching high-quality managers allows them to be aware of best governance practices and to resolve potential internal conflicts, in particular concerning the balance between respect for tradition and openness to innovation.

Need more information on the modalities of this coaching dedicated to members of family businesses ? Do not hesitate to contact our teams.

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