Owners of successful businesses must face the fact that eventually, they will retire. An appropriate succession plan can ease the disruption often caused when the company owner leaves. If the owner chooses to hand over the leadership reins to a family member, they must ensure that the succession is seamless.
Several complications commonly pop up during business succession planning, especially when the family is involved. A few include:
It’s not uncommon for business owners to become so caught up in their daily routine that they don’t start succession planning until shortly before they plan to retire. This is a huge mistake!
Handling the affairs of the business is essential, but at some point, the owner won’t be there to supervise them. Appointing someone capable of managing a business is critical.
If the owner plans to turn the business over to a family member, the successor must be identified early. The owner should ensure that the family member wants to run the business. If any conflicts arise over the selected successor within the family, they can be addressed directly.
The family member chosen to run the family business should have the skills to lead the company and understand its inner workings.
There is a lot to unpack here. Specifically, they’ll need to:
Both on-the-job and educational training should be of top priority. Education can be a combination of executive leadership — such as an MBA — and an undergraduate degree related to the business.
For example, if the company sells parts for automobiles, an engineering degree would likely be required. On the other hand, an accounting degree would be helpful for a family-owned CPA firm.
Executive change typically brings new processes and expectations for employees. It’s never an easy time, and workers may feel at a loss when the owner they’ve come to know retires. That’s why it’s essential to clarify a business owner’s succession plans early and let employees get to know the family member who will be taking over.
If the expected successor is a child, it’s best to wait until they have obtained educational training before bringing them fully on board. Academic training will give them the basic knowledge they need to succeed in the business.
While they are learning, the owner can regularly engage with the successor away from work concerning problems in the industry.
Business owners can take several different tactics when resolving succession issues.
The successor should be given challenging projects early on to prove their abilities to staff members (and the owner).
These assignments should give the successor the chance to dive deep into the nuts and bolts of the business. They should be held accountable for both their mistakes and their successes. Ideally, projects will be given in multiple company areas, including technology, finance, sales, and product or service development.
Making the successor prove their worth to the company is essential for driving the business forward. Non-familial workers won’t respect an owner who isn’t interested in the company’s success. It’s vital for the successor to earn that respect to keep staff engaged and drive positive earnings for the company.
Part of gaining support from employees who aren’t related to the new successor is ensuring collaboration. To avoid accusations of bias within the company, the successor should frequently cooperate with team members. Cooperation helps to gain trust with existing staff members and will make the ownership transition easier when it occurs.
Ensure that the successor is required to work with key team members often. Collaboration allows employees to get to know the successor and get a feel for what it will be like to work for them.
Make sure the successor is aware of who the crucial employees are so they can develop a solid working relationship. It’s not uncommon for employees to leave during an owner transition, so trying to keep those who are highly important is imperative for a more straightforward progression.
An essential part of succession planning is providing feedback. You’ll need to let your family member know when they’ve done something incorrectly. This can be difficult in some families. Since parents and children know each other well, correction may not be taken seriously.
Be clear to the intended successor that mistakes may be made, but serious ones can impact the business negatively, resulting in lost customers and earnings. Lost earnings can affect the successor’s income and employees dependent on their paycheck.
A family business advisor can help design ways to make succession planning and actual leadership transition easier. They can ensure that the proper legal steps are taken to protect the business and the family. In their position as a consultant, business advisors are objective when it comes to matters of family succession.
As a parent or relative of a potential successor, it can be hard to spot a family member’s shortcomings. Advisors can do so and make recommendations for overcoming them. If they see signs that a successor isn’t the right person for the job, they’ll be able to point out why and avoid potential difficulties down the road.
Succession planning for a family business shouldn’t start a year or two before the owner retires. Steps should be taken years in advance to ensure a smooth transition, eliminate the potential for unhappy employees, and give the new successor time to develop the skills they will need to run the business as optimally as possible.
While a business owner may be tempted to step in and assist when they see signs that the new owner may be making the wrong decisions, it’s best to step back as much as possible. Doing so allows the successor to make their own mistakes, which is vital to the learning process.
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