What is succession planning exactly? The Economic Times defines it as, “a process by which individuals are scanned to pass on the leadership role within a company.” When you develop a solid succession plan, it ensures that business operations continue to move smoothly and uninterrupted as you step away to retire or resign.
For all family-owned businesses, succession planning should be a priority, especially if the business owner wants to pass the company on to the next generation. If you’re heading a family business, sooner or later you’re going to want to retire. But if you’re planning on passing the torch to family, retiring is more than informing the office that you’re going to be spending your days volunteering, traveling, playing with grandkids, or on a golf course.
One of your main concerns is going to be saving enough money so you can afford to retire, but beyond that, you’ll have other pressing questions. Who is going to run the family business when you step away? How do you intend to transfer ownership?
If you plan on having relatives take over the business, it’s critical that you develop a family business succession plan so all relevant issues are tackled well in advance. The ultimate goal is to have a smooth transition as the future owners take the reins from you, not some chaotic, if not hostile, takeover that leads to resentment and lowered employee morale.
Succession planning with family businesses is not the same as it is for non-family businesses; it’s inherently more complicated because of the sometimes raw and vulnerable emotions and family relationships involved. Not only that, but it’s kind of like estate planning. Some business owners avoid it because they are not comfortable contemplating advanced age, finances, and their own mortality.
Tips for Family Business Succession Planning
1. Star succession planning well in advance.
We suggest starting early, this way you don’t have to scramble when it comes time to make your exit. When should you begin planning? Five years before the exit is great, but ten years prior is ideal. Our business coaches often advise clients to incorporate their exit strategy into their business plan, but if “junior” was only an infant or toddler at the time the business was started, that’s not realistic. Essentially, it’s better to have plenty of time to build your succession plan so you can work out all the kinks.
2. Get your family involved in the discussion.
We advise against privately making your own succession plan and then announcing it to your unsuspecting family – this method will surely backfire and lead to hostility. Instead, have an open dialogue with your family about the succession planning process and pay close attention to each member’s feelings, opinions, ambitions, and concerns.
3. Have realistic expectations.
You may want your oldest son to take over the business, but is he really the best fit? Does he have the skills, desire and ambition to succeed? If you run a farm for example, and your oldest son dreams of becoming a concert pianist or a doctor, you may be setting your sights on the wrong family member. Maybe your middle daughter loves to get dirty, is great with the employees, and has a knack for leadership.
The idea is to look around and see which family member is the most qualified for the job. Some business owners believe that a son or daughter-in-law is that person, or they realize that no one in the family wants to run the business, so it’s better to sell it. As you weigh your options, examine the strengths and weaknesses of each family member and lean toward a candidate who is truly best for the business.
4. Personally train your successor(s).
You don’t want to hand the business over to your successor until after you’ve spent ample time training him or her. A month is not long enough. The family business succession plan will be a lot sounder if you work very closely with your successor for at least a year or two before you step away. If you’ve been a solo entrepreneur, we understand, it can be hard to invite someone in on the decision-making process, but your mentoring will pay off big when your successor is well-groomed to fill your shoes.
If you envision passing your family business on to the next generation, the worst thing you can do is ignore business succession planning. The effects of a solid succession plan are twofold: 1) you ensure you have the funds you need to retire comfortably, and 2) the business you worked so hard to build will thrive in your successor’s hands.
At AdviCoach, our business coaches work closely with the owners of family businesses to help them develop and incorporate powerful and effective succession plans. To get the professional guidance you need, contact us to get started.