Many small businesses run by families don’t survive the transition to the second generation. This is alarming, especially when you take into consideration all the work you put into building your business to its current level of success. Your children, spouse, and other family members who run your business with you are no doubt valuable assets, and you couldn’t do everything you do without these people around you. However, when it comes to selecting the right person to take over for you when you retire, making this decision in the family environment makes it an especially difficult area to navigate.
advisorRETIRE™’s expertise in succession planning can help to alleviate some of this burden. In this post, we’ll explore some of the ins and outs of choosing a family member to take over for you once you retire, as well as how to divide the assets and other responsibilities of your business. With plenty of planning and communication, the transition, while certainly not simple, will be far less difficult to navigate and set your business up for success in the future.
Be Upfront With Everyone
The last thing anybody wants is hurt feelings. These are the people you’ve grown up with, raised from infancy, and will spend the rest of your life with. Of course, you want everybody to be happy. But the truth of the matter is that not everyone can or will be happy with your decision. Inevitably, there will be some who are upset and will have a time of adjustment. You might even have a family member who decides to leave the company altogether.
The best way to soften the blow of announcing your successor is to be honest with everybody. Address each family member individually once you’ve made the decision to retire to ensure communication. Ask that they allow you to break the news to everyone on your own, and not to speak to other family, friends, clients, or associates until you’ve given the go-ahead.
When you’ve made the decision in regard to who will fill your role, be firm, honest, and open with everybody involved.
Determine Financial Shares
It’s possible that, in addition to leadership roles, financial and voting shares will need to be determined. This is where things can get tricky. For example, you might have two children. You might have one child who is perfect to fill the role of running the company, but the other takes a smaller role within the company (or isn’t employed in the company at all). You could decide to split the voting and financial shares equally, despite the scope of the roles within the company. And don’t forget that your spouse would likely have some voting and financial shares as well. If one family member decides to sell a portion of the shares, legal paperwork will need to be drawn up to determine the process for those sales. These are decisions you’ll want to plan and discuss in advance of your leaving.
Hire a Succession Planner
Even in the easiest and smoothest of transitions, there are so many unknowns, challenges, and bumps in the road. In less-than-perfect situations, family members have disagreements over who’s been chosen to take over the executive leadership roles or are unhappy over the division of shares, responsibilities, and voting rights. While you certainly want everybody to be happy, it is possible that not everybody will be. This is why hiring a succession planning company to come in and help plan, mediate, and navigate these rocky waters is going to be tremendously helpful to everybody involved. advisorRETIRE™ has the leading edge in succession planning services and can help. Call us to learn more about how we can help you!
Ensure Proper Training
While it’s likely your family members have grown up near the business, and have worked in it for some time, that’s no reason to skimp on necessary training. Be sure that all proper licensing is obtained before your exit, for example. It’s never a bad idea to get extra training in small business skills such as bookkeeping, marketing, speaking, and other skills that will enhance your family members’ ability to run the business smoothly. You want to ensure that your successor is able to step into your role as seamlessly as possible. Check your local community college’s classes, the SBA, or online courses available.
Define The 10-Year Objective
When you decided to retire and started your succession planning, you likely planned for the next several years: retirement funds, hobbies to pursue, and vacations to take. However, the family member taking over your business has a daunting task ahead, which is to determine the goals for the company over the next several years.
Once you’ve determined who your successor will be, sit down with him/her and look at the company’s history, where it is right now, and where you would like it to be in the next 10 years. Your successor likely has some new ideas to implement regarding where the company can go, too!
Now that the 10-year plan has been decided, it’s time to sit down with the company and executive team as a whole to go over the plan. Discuss how the company is moving forward and upward, even without you at the helm.
Transition Out Over Several Months
When an executive leaves suddenly, the company has an overall sense of discord. Its employees, clients, and business associates feel that ripple for quite some time, and in some cases, that’s a bell that can’t be un-rung. This is why it’s so important for you to work next to your successor over the course of several months to transition him/her to this new role.
At first, your successor will likely shadow you and learn the ropes. Next, you’ll want him/her to start taking on more responsibilities, until, after a while, he/she is handling your role with you merely observing and answering questions here and there. This type of transition shows everybody involved that whoever takes over for you has been trained extensively and is more than qualified to fill your role. It instills confidence in your brand that will continue for years to come.
Find Other Roles for Family
Your nephew might be very valuable to your team but isn’t quite ready to take over. But you understand his worth to your corporation and know that at some point, he’ll be ready. You can find a role for him within the company that’ll groom him to take over a higher leadership role within the company one day. This is the type of planning you can discuss with your successor as part of your long-term planning. Be sure that family members who weren’t chosen to take over your spot are tapped for greater growth within the company, and same with any non-family members who provide great value to your organization.
advisorRETIRE™ offers the full spectrum of succession planning services and can help you make a seamless transition. Sign up with us today so that one of our advisors can work with you!