Do you have a plan to continue your income after you’re done working in the business you own?
Are your family members and employees set to carry on?
Unbelievably, the majority of business owners wind up shutting the business down and walking away, leaving themselves and their families with nothing to show and leaving employees to figure out how to carry on.
At the risk of sounding melodramatic, if you lead a company and you don’t have a succession plan, it’s a catastrophe waiting to happen—to your company, employees, customers, and family.
A succession plan is something you want to have ready to go so it’s there when it’s needed instead of trying to throw one together at the last minute.
What are the first steps to take to create a succession plan?
Early in our business coaching relationship, we encourage business owners to create a personal vision so they know what personal outcomes they want from business ownership. This is a good first step to succession planning. Check out our Personal Vision Creator.
When the time comes to choose your successor, draw up a formal transition plan together. Your plan should include a target date for the handoff, any change in your work schedule, and a description of the legacy you want to leave. Include a plan for the successor’s rotation through the main functions of the business to help establish credibility and gain experience. Also create a communication plan to keep all employees, customers, and family informed.
Financially, you want to identify the value of the business, do tax planning, and determine how to best transfer the assets of the business for the benefit of all.
If you don’t already have them, a best practice is to create a Shareholders Council and a Board of Directors. Family businesses should also create a “Family Forum” and a list of qualifications, performance, and behavioral rules for family members who wish to work in the business.
It’s hard to create a succession plan without some experts.
You’ll want a financial advisor to help plan your future money needs, a CPA to advise on tax issues, and a lawyer to draw up paperwork that protects your interests before and after the transaction. Your successor should choose their own lawyer to represent them as this will protect both of you.
As business coaches, we work side-by-side with owners and their successors to navigate the process from beginning to end. We connect you to financial and legal experts well-versed on succession planning and we also ensure the people side is managed with caring for all stakeholders. This is emotional stuff for business owners, families, successors, and employees so it’s valuable to have an outside party who can work well with everyone.
Succession planning family business
Succession planning in family-owned companies can be the most complicated! The complex dynamics and multi-layered relationships in family business make discussions about handing over the reins exceptionally challenging. There’s often a disconnect between what the owner is planning and what the incumbent is expecting, even though they may be father and son, mother and daughter, uncle and nephew, brother and sister, etc.
To help, let your successor do things like choose new employees, adjust the company culture to fit their character, take risks with you as a back-stop, and make as many decisions as possible… difficult because you can still see them as a child and know their tendencies and weaknesses. However, the sooner you start to let go, the better.
Small business owners tend to minimize profitability to avoid Uncle Sam’s reach so as you near the time for transition, work to create several years of maximum profitability. Also, improve your balance sheet through debt reduction and retained earnings.
You’ll need the healthy bottom line to afford the necessary advisor costs, to pay for golden handcuffs to keep your key non-owner managers, and to pay your successor as they systematically rotate through business disciplines.
Maximizing profitability and cleaning up your balance sheet enables you to hand-off a healthy company and earn a healthy pay day for all the sacrifice you’ve put into your business over many years.
Communicate your succession plan
Succession plans don’t have to be secret! Communicate your plans and get your whole team involved. Bad things can happen when people don’t know there’s a plan or what it includes. Those who thought they were in line for succession may try to outshine co-workers or be angry when they’re not chosen. If they leave, that can be bad and if they stay, that can be even worse. Other employees may leave for a more stable future somewhere else. The more everyone knows, the more clarity and confidence will prevail.
Don’t hold onto the way you’ve run things. If you want your successor to continue the business beyond you, they must lead it their way. Force yourself to take a back seat to your successor acting more as coach than boss. Don’t let them make costly mistakes but allow them to make their own mistakes and help them learn from them.
Succession planning expert
If you want this last chapter of your business life to end positively, enlist the help of someone who’s successfully navigated the sensitive, often painful path that succession planning is.
Our business coaches are succession planning experts. We’ve been at the table for discussions about how much a son will pay his father after he retires. Imagine… a son trying to put a dollar figure on his father’s ongoing compensation at the company his father founded! Or the 60-year-old daughter whose mother won’t let go and let her lead. These situations aren’t unusual.
You’ve given so much of your life to make your business a success that it’s nearly impossible to detach enough from the emotions, fears, and challenges to handle this transition all on your own.
We’ve navigated many succession plan processes where hard decisions were made that strained relationships and all sides came out happy when it was all said and done.