Do you run a family business? What are your family business succession planning strategies? Have you built a successful business but you are worried about the continuity of your business after your death or retirement? If you need answers to the questions above, then i advice you read on.
Have you ever stopped for a minute to consider what is going to become of that business you are struggling so hard to build should anything happen to you today? As much as we would like to always focus on the positive, some negative things are inevitable. No one want / plan to die but won’t death snatch us all up one after the other whether we desire it or not.
Aside death, there are other reasons that could render a business owner unable to manage his business again and in need of a successor—such as retirement, old age, illnesses, business expansion and relocation. So, you see that there are just so many viable reasons why you must have a business succession plan for your business.
Family business succession planning is one of the most crucial but often ignored aspects of small business planning. Take time out to run through the list of famous families who have businesses you know, and you would find that some of them are being managed by 2nd,3rd and even the 4th generations. The pedigree of these families in the business world could be termed as a typical example of great dynasty businesses all over the world.
It is a well known phenomenon that most successful family businesses fail after the demise of the founder and one of the reasons for such failure is lack of passion on the part of the successor. This makes family business succession planning more important than ever. Now before we go further, it’s important to understand what business succession planning entails. In simple words, business succession planning involves getting ready for a company’s future by preparing someone to take over the management of the business should the current owner or manager become unable to continue to run the business.
What is Family Business Succession Planning?
According to Wikipedia,
“Succession planning is a process for identifying and developing internal people with the potential to fill key business leadership positions in the company. Succession planning increases the availability of experienced and capable employees that are prepared to assume these roles as they become available. Taken narrowly ‘replacement planning’ for key roles is the heart of succession planning.”
Family business succession is a crucial part of passing the responsibilities to the younger generations while avoiding bankruptcy resulting from losing clients, ineffective new management styles and defective cash flow structuring.
It’s often said that one of the greatest gifts you can give to your children aside from good education and good morals is establishing a thriving business for them to inherit. Statistics has shown that most companies owned by Africans and established in Africa hardly survive the owner. This notion can be termed as right if you count the numbers of companies that have celebrated 100 years in Africa. This is unlike the situation in the United States and in other developed countries where families enjoys the benefits of running companies established by their forefathers.
Business succession planning is more important than you think. It plays a lot of important roles in the continuity of your business in the following ways:
- It boosts your employee’s morale by proving business stability. When employees perceive that a business has no foreseeable future, they begin to hunt for opportunities to work in other establishments where they feel they would have a future. This causes you to lose your best employees to other companies.
- It boosts the confidence of stakeholders in your business. Suppliers, creditors and even customers would feel more confident to do business with you when they believe that your business would continue to run without interruption.
- Another benefit of business succession planning is that it creates healthy competition amongst workers; every employee would be motivated to work harder to outshine the other and get picked as the successor.
So now that you have understood the importance of family business succession planning to with respect to sustainability and growth, this article will help you understand proven and viable business succession strategies that have helped conglomerates the world over establish thriving family businesses that have moved baton from one generation to another. Without wasting time, below are 25 smart tips to follow for family business succession planning. This will help to make sure you are doing it right.
25 Best Family Business Succession Planning Strategies and Tips
1. Identify your reason for creating a business succession plan
First, you must consider your reason for creating a succession plan. Are you due to retire soon? Do you have some key employees whose positions are crucial to the survival of the business and may leave the company soon? Whatever your reason, it must be clearly analyzed as your succession plan would be determined by your reason for the succession plan.
2. Involve the right people
You may not be able to do this alone especially if there are many stakeholders in the business or if the company is a very large one. In this case, it would be advisable for you to come up with a succession planning team of key people within your organization. Together, you would be able to brainstorm and come up with an effective business succession plan.
If your goal is to hand over your business to your children and expect them to hand it over to the next generation, then you must first of all go the extra mile to put in place strategies that will position your business for continuous growth. Doing this will give your successor leverage and create room for them to operate under less pressure. This is not to say that you should create a business that can operate on autopilot. If you can, good for your successor, but if not, just make sure that the company you intend handing over to your children have the potential to grow.
4. Build a Solid Corporate Culture
You must ensure that the attitudes, values, beliefs and the standards that characterize your employees are geared towards creating a culture that supports excellence and growth. Be deliberate about the culture you permit to thrive in your organization. Create creeds and work environment that will instill the qualities that can produce what you want your company to be known for. Once you get your corporate culture right, it will become a way of life for your employees.
If indeed you want your business to outlive you, you must design a business plan that is flexible. That is coming up with a business plan that can be tinkered with. Embarking on this will give your successor room to improve your company, and bring in creativity into the enclave.
6. Synchronize your business succession plan with the company’s plan
Your company most likely has some long-term plans. It is important that your succession plan is not alienated from the company’s overall long-term plans, but designed to suit it. For instance, if your company has a long-term plan to go into the telecommunication industry, you must ensure that your successor has what it takes to lead a telecommunication company.
7. Organize Consistent Family Meetings
The importance of consistent family meetings cannot be relegated to the background if family business succession is in view. Organizing consistent family meetings and get-togethers will not only help you to spend quality time to know your family members, but it would also create a family bond and unity. Mark you; a family that is not united can hardly manages the business they inherit.
8. Educate Your Children
Starting your succession plans from the basics is a factor to having a smooth succession. Deliberately educating your children for the task ahead is the basic thing to do to get your succession plans started. You should strategically educate your children to fit into the industry you want them to operate in. Also, ensure that they get relevant first degrees, professional certifications and Masters Degrees, preferably the MBA.
9. Equip, Mentor and Expose Your Children
It is inevitable to have a family business succession. So it is better you start mentoring your kids about the business and introducing them to the industry you are in. Passion for business is not learned; it is developed through the years of exposure.
Your succession strategy must include intensive mentorship program for your potential successor. You should go all out to create time for private meetings with him/her. In exposing your potential successor, you should be willing to let them start their working career with any other company and not yours. The idea is to instill good work ethics in them which they might not likely get whilst working for you.
10. Identify your successor
It is the most obvious point among the 10 tips for family business succession planning. Unfortunately, many people still miss the point. It is not enough for you to designate a COO (as in Child of the Owner) as your successor. The truth is that your successor can come from anywhere. It might be your children, family members or your employees.
The most important thing is that you choose candidates who are willing and able to run the business. Your choice must not be based on sentiments. Many business owners like to choose their children as successors even when it’s obvious that their children lack the skills required to run the business. Eventually, the business starts to collapse because the success is unqualified to run the business.
You need to ensure that all the qualities are seen and the successor is ready for the bigger responsibilities and challenges ahead as a whole. If you think your son or family member is not ready, have someone do the actual management while your family member takes only the position while preparing.
11. Employ Your Potential Successors
Allow your potential successor to go through your company’s employment process without any bias. You might also want to ensure that he qualifies for the advertised position. Although this might be a bit difficult, but try as much as you can to be objective when dealing with him/her. If your potential successor earns his/her place in your company, it creates a sense of responsibility and will set such a person on the right path.
12. Position Your Successor to Grow Through the Ladder
Make sure you position your successor for growth by ensuring that he’s assigned with a role that would enable her relate with all the departments in your company. Doing this will expose and prepare her for the task ahead. If you position your successor properly, it would be easier for her to grow through the established hierarchy of your company. Please note that your successor must earn every promotion she gets; this is if you truly want the best for the future of your company.
13. Agree on a business transfer plan
Next, you have to decide on a business transfer plan or what is known as your exit strategy. This involves deciding on whether you want to sell the business completely to the successor or just allow them take over the management of the business.
14. Appreciate your workers
Great business leaders have great workers and designation is always important in establishing that bond between the upper and lower arm of the business. Designating the business management to a successor is inevitable and while some of your employees may not welcome the idea, it is still going to happen sooner or later. So to keep getting their support for the new management, you need to acknowledge their contributions and assure that nothing will change between the management and employees.
15. Have everything legally settled
This will not happen without trust. All paper works should be finished before the official succession to avoid confusion and suspicion among your partners, investors and clients. You do not want others to see it as a just-for-show as this will lead to distrust. In this case, your family business succession plan must be backed by good legal decisions as well, so it’s advisable you seek the services of a competent legal practitioner or attorney.
16. Anticipate the challenges ahead
In order to breeze into the transition period, you need to be pro-active in solving problems even before they come to reality. This is the most complicated among the tips for family business succession planning I listed in this article and the reason is because it takes an experienced business owner or manager to foresee the challenges to which the business in most vulnerable at.
17. Discuss with your family
Many siblings may want to take over the role as it is also tantamount to power, and most likely, money. Misunderstandings within family are normal and expected, but it may result to the downfall of your business if left unattended to. Therefore, it demands urgent attention and solution.
18. Get professional help
Not many families want outside parties meddling with their family affairs, especially when it comes to money. But remember that the risk is higher to have inexperienced business head steer the company than have consultants and advisers share their business acumen with you.
19. Do not emulate the old management
Many successors believe at first that emulating how their predecessors managed the business will keep the profit coming and management-employee relationship working. They forget that no two persons are alike and albeit the fact that styles can be copied, but decisions and problems will always vary.
Instead of trying hard to be someone else, just be natural and learn as much as you can in running a business. After all, the reason you are reading this family business succession planning strategies is to bring out the best in you and not bring out a world-class copycat out of you.
20. Succession does not mean end of responsibilities
Retirees deserve a big break and grand vacation after the years of keeping the family business thriving. After all, they are working for a better life. However, taking a permanent break from management does not necessarily mean cutting the connection. The insights of experienced businessmen are priceless. They may come in handy should the need arise so better keep the lines open.
21. Set a Target for Your Retirement
Retiring out of whim is no different from resigning without a new job. The future is vague and financial management at the brink of falling apart. Do not be hasty and retire only when there is a worthy successor.The best way to know what will become of your company after your demise is to step aside and watch those running it without interfering.
Since your goal is to build a business for your family to continue, your retirement should come earlier than normal. If you have put all the structure that is needed for your company to grow, stepping aside to watch it grow would be the true test you need.
22. Introduce the successor to key officials
Your successor needs to become very familiar with the people he would be working with, especially the key officials. This would help to guarantee a smooth transition.
23. Introduce the successor to employees and stakeholders
24. Hand Over to Your Successor
If you have successfully implemented the above stated points, the next thing you are expected to do is to handover to the member of your family who succeeds in going through the screening huddles you set. Make it a point of duty to celebrate whoever you hand the baton over to.
25. Stick around for a while
Your guidance and advice would be very much needed so you should try to offer your services as a consultant or advisor to the business until the successor has been able to learn the ropes perfectly.
All these are all it takes. Building businesses that survive different generation is not rocket science; it is all about knowing the right business succession strategy to adopt and that’s exactly what you have been provided with right here. Equipping yourself with this information will give you peace of mind whenever the thought of building a business you can successfully handover to your family members comes to mind.