Oftentimes family business succession planning is triggered by death or sickness of the owner, if it’s even triggered at all. This is a typical reason why family owned businesses fail to make it to the next generation.
Many business advisors would tell budding entrepreneurs to build an exit strategy right into their business plan, because ultimately, the key to generational success is taking out the time to plan for it.
Planning should begin at least four to five years before the transition. Depending on the type of business, increasing the planning period to eight to 10 years beforehand would probably be more efficient. There is a list of things that you have to work through, like:
- Strategic Planning – What is the vision and plan for the future of the business?
- Ownership & Management – Who will own and run the business? Will owners need to work in the business?
- Financial Planning – What is required to execute and achieve your business goals to ensure a successful transfer and growth?
- Human Resource Planning – What staffing is required for the next phase of the business? What training needs to take place?
- Estate Planning, Taxes, Liability – How do you want your estate managed? What are the tax implications? Who is liable for mishaps?
Long-term planning gives your child, children, or successor enough time to learn and manage the business. You, as the owner, are also able to see how well your potential successor operates – what their strengths and weaknesses are, and what additional professional and personal development is needed.
Some of the questions that should be asked and answered at the onset of the planning process:
- What is your vision as the owner?
- How do you want to spend your later/retirement years?
- What will it take financially to live out later/retirement years?
- Do you want to keep the business in the family?
- Do members of your family have a vision for their own lives?
- Does the next generation wish to run and/or operate the business?
- Does the company’s strategic plan support the family’s vision and values?
- Is the business positioned for long-term viability and succession?
- Could the business survive your untimely death or disability?
- Which family members will enter the business?
- Who will you prepare for succession?
- How will you prepare them?
Succession planning is a big feat to take on. It takes a village … literally.
Seek out and engage with other generational family-owned businesses. Get advice and learn their transition stories. Getting an inside account of the reasons why they chose the path they did may shed light on potential upcoming challenges and decisions you may face.
What did they learn? What do they wish they would have done differently? How are things going now? How did they align the ownership goals and aspirations of the next generation with those of the current generation? Getting examples and talking through situations will equip you with the mindset required to take on succession planning.
Involve your family. Before making any decisions, or really starting the process, get support and buy-in from your family. This isn’t something that should be done in secret. It also gives you and your family an opportunity to connect and dream for the future, changing the negative connotation of succession planning being about death or “the end.”
Seek out support and assistance from a variety of professionals as well.
- Accountants – Your accountant should be advising you on succession planning based on analyses of patterns of income and expenses of the business as a tool for future planning. Part of succession planning involves calculating the probabilities of certain occurrences and then determining how to survive them.
- Management Consultants – Depending on the nature of your business and/or availability of time, hiring management consultants to assist with assessments, development of transition processes, data collection, training, work plans, and technical support may be beneficial and helpful.
- Bankers – Begin to build a relationship between the company banker and your successor. Share plans and financing needs based on your succession plan.
- Lawyers – Gain legal advice as you make decisions and plan in order to legally protect your business, preserve wealth, and prepare for the future.
However, before engaging their expertise, you must have a vision for what it is that you want to have happen. The professionals are in place to support, advise and help implement the vision you create. You should not be looking for professionals to create your vision.
3. Time & Responsibility.
Allocating the proper amount of time to plan for succession planning is critical. And not solely to ensure the success of the transfer, but to ensure your legacy, which you may not think about in depth until you begin succession planning.
Oftentimes your legacy – how you want to be remembered and what you want to leave behind – goes beyond your family business and delves into philanthropy, memoirs, and mentorship, etc. Once you open the door of succession planning, you’re going to be happy you allocated the most possible time to dream, plan, and execute. You may find that you have dreams and aspirations beyond the day-to-day operations of the family business.
With time comes responsibility.
The key to everyone taking ownership of their role is understanding it. As a small business owner, you must understand your responsibility to ensure the success and long-term viability for your business and its successors. Your successors must understand their responsibility to continue growing the business you started. Appreciation of these responsibilities is what leads to everyone working together as a team.
The inherited responsibility of your successors is something that should be nurtured and cultivated as early as possible. The earlier the seed is planted the stronger the roots and potential for long term success.
Cultivating inherited responsibility yields a sense of pride and understanding within your successors that they are continuing something bigger than themselves. This equips the next generation with the tenacity and perseverance to see it through.