Few business owners like to think about the time when they won’t be at the helm of their companies. For family-run companies this is especially true. Indeed, to the owners, the company may be like a child, and the prospect of letting go may be inconceivable. Still, family-owned businesses need a succession plan. Preparing family members is an essential step toward passing the business on to the next generation.
The best time to start planning business succession? As soon as you can. Waiting for the “right moment” is not strategically sound — the right moment rarely presents itself. Expecting others to do it for you is unwise as well. Like you, family members may bristle at the thought of succession, but it is in everyone’s best interest to raise the issue and become comfortable with building a future plan.
Here are some proven ways to help your family members prepare for business succession:
- Make a good case for succession planning. If you want to influence family members’ opinions, you need to make a good business case for succession planning. Establishing a solid succession plan is like having a good insurance policy for the continuation of a business, especially one that may have been around for many years and which has every chance of succeeding. Help family members understand the value of putting a succession plan into place.
- Give them the numbers. According to the U.S. Small Business Administration, 90 percent of the 21 million small businesses in the U.S. are family-owned, but only 30 percent of family-run companies succeed into the second generation, while only 15 percent make it to the third. Usually, the lack of a solid succession plan is to blame.
- Think “strategic” when creating your plan. Timing is important. Experts advise that planning begin when you are between the ages of 55 and 65, though that can vary depending on several variables including the nature of the business, the dynamics among the next generation, and your willingness to step down from your leadership role.
- Ask yourself several key questions. Most learning begins when you ask yourself — and in some cases your staff — critical questions. Questions force you to think of the future, which is clearly necessary for succession planning. Ask questions like “Do I want to spend more time with my spouse/partner?” “What do I want to accomplish over the next 5, 10, 15 years?” “What could I achieve if I weren’t head of this company? How would that change my life, my health?” Also, don’t be afraid to ask your close advisors what they think. They bring a perspective that those in the business don’t have.
- Decide what role you’d like after “retiring.” As you think about what kind of role you’d like to play once you’ve stepped down, consider all your options. You might be able to stay close to the business in a consulting role. Maybe you want to travel or even start a new endeavor. Volunteer work is another option. Whatever you decide, be sure you have a clear plan for yourself before completing a succession plan. Asking family members for input will help you make the right decision.
- Don’t be afraid to talk about money. You’ve heard about the elephant in the living room. Well, money is the equivalent when it comes to succession planning. Instead of forcing people to guess, raise the issue with honesty and understanding. Ignoring money matters will only increase people’s anxiety levels. Business agreements normally outline what will occur when it comes to shares of stocks, assets, and other financial considerations. But don’t wait for people to consult a document if questions arise.
- Ask for input. Asking your family members for their input will give you information and assign value to their feelings. By asking for their opinions you’re telling your family members that they count — in your life and in the life of the business. If they feel shut out, you might not experience the kind of cooperation you’ll need for succession to succeed.