Succession planning can be difficult for any business owner, but it’s often especially hard in family businesses. Sometimes, owners will put off succession planning for fear of disrupting family unity.
For example, if one child is the heir apparent to take over leadership when you retire, you might be worried about hurting your other children’s feelings — so you just don’t talk about succession. But trying to sweep it under the rug is doing a disservice to everyone in the family. Failing to talk openly and plan early for succession will lead to much more serious problems down the road when it’s time for you to step down.
Start Succession Planning Early
Experts say that succession planning should start at least three to five years before the time you plan to exit the company. This will give you time to identify and train new leadership, start transitioning client and vendor relationships to them, and begin easing yourself out of the picture gradually.
For example, let’s say your oldest son shows the most aptitude for running the business after you’re gone. Meanwhile, your daughter is one of your top salespeople and your youngest son has a knack for managing operations. You should hold a family meeting in which everyone talks about how their strengths can best be utilized for the good of the company and then assign succession roles accordingly.
Also think about the roles that key non-family employees can serve in the company after you leave. If one of your children doesn’t show strong leadership abilities, you may need to tap a non-family employee to run the company. This could result in strong emotional reactions and hurt feelings on the part of your children, so be sure to talk openly and honestly about this long before your planned exit date.
What About You?
As you begin succession planning, you also need to think carefully about your own plans for life after your business. This applies to both your personal finances and your post-business lifestyle.
On the financial side, will you be dependent on proceeds from the sale of your business to finance the next stage of your life? If so, we recommend you start working with a financial advisor now to plan for how you can maximize your sale proceeds and create a steady stream of post-ownership income.
On the lifestyle side, how much thought have you given to what you want to do after you leave your business? Maybe you want to retire — if so, think about how you’ll spend your time in retirement. For business owners and entrepreneurs who are used to running 100 miles per hour every day, retirement can be a drastic adjustment if they haven’t planned ahead for how they’ll spend their time.
Or perhaps you want to start another business after you leave this one. If so, start planning now for how you’ll use the proceeds from your business sale to finance your new venture. Or maybe you want to volunteer to help support causes you’re passionate about or serve as a corporate or nonprofit board member. If so, start thinking about where you can lend your talents and expertise to do the most good while also gaining personal satisfaction.
Turn to Your Advisors
As you embark on the succession planning journey, be sure to involve your team of trusted business advisors in the process. This includes your financial advisor, CPA, attorney and insurance agent, as well as your company’s board of directors. These professionals can offer an objective, unbiased perspective on your situation and share tips and strategies they’ve observed at other family businesses similar to yours.
Give us a call if you’d like to discuss family business succession planning in more detail. We can help you create a succession plan that meets your post-business financial and lifestyle goals.