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Business Succession - 7 min read
Business succession is challenging, no question. And if your family happens to be a part of your business, the challenges multiply. Hurt feelings, expectations and family squabbles add to the complexity of succession.
What can you do to master your family succession plan? We have ten tips for you.
Five years in advance of the succession is good, but ten years is better. Many business experts advise nascent entrepreneurs to build succession right into their business plans.
The longer you have to implement and follow your succession plan, the smoother the transition will be.
Starting early gives you the luxury of taking your time. The right person to head your company may not show up at precisely the moment you need him or her, but if you have an extensive timeline at your disposal, it won’t matter. You can be flexible and focus on quality rather than time.
A lengthy timeline is especially helpful when you’re turning the reins over to a family member. They can gradually ease into the role, learning from you until they’re ready to fly solo.
Business founders tend to hang around and make sure everything goes according to plan. But put yourself in your successor’s shoes. As you were building the business and trying to make things work, how would you have felt about being micromanaged by the previous generation?
It’s not easy to loosen the reins. Your successor will make mistakes, just like you did, and you’ll want to prevent errors and share your wisdom. We’ve noticed, however, that smooth family successions depend on the older generation gently letting go.
One of the most common mistakes made in family businesses is failing to spend time building the skill set of the next generation. It’s understandable. Running a family business is intense; it requires constant effort and focus.
The most effective way to focus on the successors’ skills is to regularly incorporate them in the work and conversations surrounding the company’s operations. Help the younger generation to understand the ins and outs of the business by giving them responsibilities in different parts of the business, and talk through the issues you face as you build and run the company.
But what if the next generation seems uninterested? Sometimes, founders have a dream of passing the business on to children and grandchildren, but nobody wants to remain involved with the company.
This sometimes happens when founders are so busy with the business that the family feels neglected. Negative feelings about the company develop, and it can be challenging to overcome this hurdle. To avoid this situation, involve children in the operation while they’re young, and make sure they have plenty of positive experiences building a work ethic and understanding the business.
Does anyone in your company have special privileges solely because of his or her surname? If so, a cultural change is in order. For a successful family succession, set expectations about how kids will participate in the business, and encourage them to seek employment outside of your business for at least part of the time. These outside experiences will teach them essential skills that they can bring back to the family business. They’ll also learn humility and the necessity for earning recognition from merit, not from family status.
It may have been your dream to turn your business over to your firstborn, but what if he doesn’t have the business skills or interest to be successful? Perhaps there’s another family member who could better fill the spot. And if no one in the family is willing or capable to take over your leadership role, an outside hire might work just as well, if not better.
Making sure everyone has equal shares sounds nice, but it might not be in the best interest of the business. The last thing you want to do is straddle your successor with an uncooperative board or a structure that makes operations difficult.
You might consider using voting and nonvoting shares so that only some of the family shareholders (the ones who have been actively involved in the operations) can vote on company policy. Another possibility is to transfer both ownership and management to your chosen successor and then make other financial arrangements for your children.
Prepare yourself mentally to walk away from management and ownership when the time comes. Ruling from the grave never turns out well. If you try to set up structures to control their actions after you’ve left the company, you may inadvertently cause leadership ambiguity and a stressful work environment for those who are carrying on.
At any point in your succession plan, you can reach out to us at Altus for assistance. Whether you’re just starting out or getting ready to hand over the reins, we can help you with your planning, valuation and anything else that comes up.
As the owner of a family business, you walk a fine line between business executive and family member. When the line appears blurry, reach out to an objective third party for assistance. We can help you make sure that your hard work continues to pay off, even after you’ve retired.
Set your business on the right path with this simple guide.
Make sure you’re on the right track with this online checklist.
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