When families debate over Grandpa’s semi-antique rocker, it can be uncomfortable, but that’s nothing compared to the warfare that can ensue over ownership of a prospering business where a son, two nephews, and a niece have worked for the past five years.
A struggle among relatives for possession of a family business is not uncommon. Whether the transfer of ownership or management is premeditated, unexpected, or mandatory, the task of passing down tenure is unavoidable. What is avoidable, however, is the messy state of confusion that an unprepared family business can easily fall into.
Small business owners have three options for managing the succession of their business. They can leave it in qualified hands while they are still able. They can work until illness or other circumstances force them to sell it, often to someone they don’t know and often at a fire sale price. Or, to put it bluntly, they can keep on working until they die, ignoring the succession problem and leaving chaos behind them.
The first option is obviously the most appealing; but how can business owners achieve it? Succession planning is the answer. It provides family businesses with a vision and a mission: a vision of what their business, ownership, and management will look like in the future, and a mission for making that vision become a reality as smoothly as possible. Creating a plan not only brings some clarity to the business’s future, it provides the family with the unity and collaborative experience necessary for making the actual transition successful.
Family businesses face unique challenges that set them apart from typical businesses. Foremost among these is finding a balance between business and family, that is, making decisions that honor the family’s values as well as benefit the business. An example of imbalance is when a father picks his oldest son to take over his business, simply because he is the first-born, when his youngest son is clearly the more competent candidate for the job.
Five Steps to Successful Succession Planning
1. Have a strategic plan: The first step to having a clear succession plan is to have a clear strategic plan. Every succession plan needs a simple layout that’s easy for everyone to understand. Think about where you and other involved family members want to see your business in 10 years. What are its core capabilities and key markets? What does management look like? Who has the ownership?
2. Have an exit plan: Under what circumstances will the succession plan take effect? Retirement? Unplanned departure? What financial situations will change? These questions help you determine what the succession plan should most detail. You should also consider the roles and responsibilities the successor will be expected to take. What control will the successor have over executive compensation? Over hiring and firing employees? What rights to the business will the successor gain? Can he or she sell the business?
3. Consider attributes of the leader: When evaluating candidates for successor, it is imperative to not slant the requirements toward a particular person already under consideration. Make a list of required attributes that can be equally applied to candidates inside and outside of the family. Are you looking for someone with previous management experience? How much should the person know about managing finances? Handling competition? Interacting with employees? Will the person value and respect the family foundation of your business?
4. Begin the search: Family position is a classic element used to select the candidate for ownership/management of a family business, but other factors should also be taken into consideration. Placing someone who has the training and skills for the position is the central goal. In order to meet this goal, you may have to look outside of the family circle. If your successor does end up being an outsider, it is likely employees and customers will respect your willingness to make choices that benefit the company.
If family dynamics dictate that a family member must take over the business, start training prospective candidates as soon as possible and equip the person with the skills he or she needs to become the ideal person for the job. Allow him or her to train with mentors or advisors and encourage the person to work outside the family business as a manager or on an administrative staff. Make it a necessity that the person have executive experience.
5. Expand your resources: Succession-planning advisors counsel family businesses to form an advisory board as a permanent resource for the business, with individuals who specialize in specific areas of business development. Such a board can provide reputable advice for expanding your business, add value to your business should you choose to sell, and complement your succession plan’s mission for control over your future.
Having a clear vision for your business is what gives it a future. Plan efficiently for that vision and prepare your business for the changes you can control. Successful succession planning gives you the opportunity to set yourself up for long-term success, so why not take it?