5 steps to successful succession planning
In the 30 or so years we’ve been working as specialists alongside family businesses one thing has become clear – only one-third of them will survive the transition to the second generation. And of that one third that gets through to the second generation, only one-third will survive to the third generation. That’s not very good odds. The chances of your grandchildren taking over your business are about 1 in 10.
Here are two common reasons why this happens –
- There is no qualified successor
- Lack of planning – people just don’t want to deal with the issue of business succession.
5 steps to successful succession planning:
1. Determine whether business succession within the family is a viable alternative
- Are your children capable of running the business?
- Are your children interested in succeeding you?
Communication and objectivity are key. You need to ask the question and you need to be sure their response is truthful. They know you are passionate about your business and they may have difficulty in saying “I’m not interested”.
You also need to ensure your child has the skill to run the business.
The issue of identifying a successor is complicated 10 fold if there is more than one family member interested in running the business – remaining objective could prove tricky and there is the potential of creating problems.
2. No viable successor in the family?
Here are some options:
- Sell to another business
- Split the business
- Hire an interim leader
- Take the company public
3. Develop your succession plan
- Accept the necessity of a succession plan
- Clearly identify your successor
- Start the process early –
- Learn more about the succession process
- Allow your successor to participate in business decisions
- Meet key business contacts
- Allow your successor to work in difficult areas of the business
- Gradually allow your successor to assume your duties
- Clearly define roles for you and your successor
- Keep the succession plan as open as possible – make sure everyone involved has a clear understanding about the plan and their role.
- Establish a clear timeline for the process – including setting dates for your retirement, transfer of share ownership, transfer of voting control
- Develop a clear business plan that extends beyond your retirement
- Obtain outside advice –
- Maintain focus on business goals
- Identify new ideas; contribute impartial feedback (positive & negative)
- Maintain objectivity
- Add professionalism to your business.
- It could be important to ensure you retain key non-family employees
- Fair doesn’t meet equal – treat family members and non-family members equally. Pay reasonable salaries /reasonable benefits to family members.
- Review the progress of the plan regularly.
4. Monitor the implementation of the plan – make changes as necessary.
5. Co-ordinate your succession plan with personal tax planning for retirement and the distribution of your estate.
Remember, succession planning is a process. It just doesn’t happen all at once. If you want your family business to survive to the next generation, you’d better start planning it now.