One of the hardest business decisions for a business owner to make involves the transfer of their business to the next generation; it is clear this is a key concern that owners have, trying to ensure the future success of what they have built once it is under a new regime. When the transition involves family members, it can be particularly difficult if they have not been involved in the business up to this point, so careful planning is needed.
In those instances when it comes to transferring the business to the next generation, there are several suggestions that could help ensure a smooth process.
The first step is creating a business plan, and when developing that plan it is important to be organized and to start early-owners should not wait until just before retiring to start thinking about succession planning. The earlier the process starts the better the chances for a smooth transfer of power.
Next, as ownership considers the transition, it needs to take into account the best way to reorganize-for example, is it beneficial to sell the company to the next generation or to gift it? This will all depend on the situation and objective, and questions like this and others need to be answered at the outset.
Succession planning is a process that requires an open mind, respect for the new generation’s opinion and input, and flexibility in putting the plan into place. If the business is to continue successfully, all parties need to agree with the plan and how it should be implemented.
Once the plan for succession is developed, it is essential that all impacted parties should be on board, and not just family members-this includes receiving input and buy-in from existing employees and management. Training will likely be necessary so the next generation and incoming management team has the best possible chance to succeed. To that end, the future leaders should be involved in management and business decisions prior to the transition, so they can learn the intricacies of running the business and be allowed to offer their input-this will help them gain confidence and, just as important, earn the confidence of employees and management.
As the next generation gets more involved in the company, it is important to make sure all roles are clearly defined, including the role of current management/ownership once the transition begins. Often times, with each passing year the next generation’s responsibilities are expanded, and as they grow into their defined role(s), they will begin to take on more leadership and gain the respect of the rest of the team.
Another successful option for transferring wealth to the next generation is setting up an external Board of Advisors. Many privately held companies are establishing these types of boards to help with the transition and provide guidance to the next generation. The board might include accountants, attorneys, friends and the owner of the business, and the board can not only be used as a sounding board for the new leaders to exchange ideas, but also by the previous regime to make sure the ship keeps sailing forward.
Every transition of power for a business brings challenges, but it can still be a smooth and well-defined process as long as a detailed, workable succession plan is put in place ahead of time.
With careful planning, the next generation is assured of having the tools and training needed to keep the company profitable and to continue the family’s successful business legacy.
For more information please contact Andrew Lattimer, firstname.lastname@example.org or 860.570.6327