Over the many years we’ve been working alongside family businesses one thing has become clear: Only 1/3 of them will survive the transition to the second generation. And of that 1/3, only 1/3 of those 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.
There are two common reasons why this happens –
- There is no qualified successor
- Lack of planning – people 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. They may have difficulty in saying “I’m not interested”.
You also need to ensure your child has the skill to run the business.
What if there is more than one family member interested in running the business? This complicates the issue of identifying a successor 10 fold. Remaining objective could prove tricky and there is the potential of creating problems.
2. No viable successor in the family?
If there is no viable successor, explore other options, such as –
- 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.
- Identify your successor.
- Start the process early –
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- Learn more about the succession process.
- Allow your successor to take part in business decisions.
- Meet key business contacts.
- Let your successor to work in difficult areas of the business.
- Allow your successor to assume your duties bit by bit.
- Clearly define roles for you and your successor.
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- 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. This includes dates for your retirement and transfer of share ownership.
- Develop a clear business plan that extends beyond your retirement.
- Get outside advice –
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- Maintain focus on business goals.
- Identify new ideas; contribute impartial feedback (positive & negative).
- Maintain objectivity.
- Add professionalism to your business.
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- It could be important to ensure you keep key non-family employees.
- Fair doesn’t meet equal – treat family members and non-family members equally. Pay reasonable salaries /reasonable benefits to both.
- Review the progress of the plan regularly.
4. Track implementation
Keep an eye on how your plan is being implemented and make changes as necessary.
5. Co-ordinate your plan
Make sure your succession plan fits with personal planning for retirement. It also has to fit with the distribution of your estate.
Remember, succession planning is a process. It 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.
Read the Free Special Report: Are You Using These 7 Key Steps to Exit Your Business?