Ask questions to determine the viability of family firm

That’s one of the key questions a family business must consider when deciding on succession, according to a new book titled "Arthur Andersen Answers the 101 Toughest Questions about Family Business."

Writers Barbara B. Buchholz, Margaret Crane and Ross W. Nager say there are several related questions:

Can it generate the profits necessary to continue to grow despite current and future capital needs?

Is the company in a strong enough market position to remain competitive, or does it require a major overhaul of its products?

Can current managers and personnel be sufficiently creative, energetic and resourceful to maintain and grow the company’s market position?

Can the company take advantage of new market opportunities?

What is the state of the industry in which the business operates? A shrinking or consolidating industry can bode ill for the business and its long-term prospects.

If the answers are yes, or most of them anyway, the authors say it is feasible to continue, and recommend starting the transition process thus:

Decide on a successor, then groom that person, demanding commitment and gradually expanding responsibilities. Ensure that your successor develops necessary skills, experience and confidence to lead the company.

Clearly designate your heir-

apparent to the rest of the family as well as to employees and outside suppliers, clients, bankers and others. Actively work to gain their support for your decision.

Be a mentor to your successor and consider someone else in the company as an additional mentor.

Set a timetable for retirement or a deadline to shift power, put it in writing and stick to it.

Develop an estate plan for assets to be divided and transfer ownership to the next generation appropriately.

Let your heir-apparent begin making decisions and don’t sabotage those decisions. You must give your successor the latitude to make some mistakes.