Transitioning your family business to the next generation can be a daunting process if you are unprepared. To ensure that your business survives and prospers over the long-run, there are several critical factors and key preparations you must consider. Before you even begin the business transition process, it is important to design an exit strategy for yourself and develop a succession plan. This requires considerable preparation, and involves making proactive decisions regarding what is best for the future of the company. It is your responsibility to pre-plan your exit, establish a timeline, and contemplate who you would like to succeed you. The earlier you start, the more successful your exit, and the transition to your next of kin, will be.
Here are tried and true recommendations for effectively transferring ownership and control of your business to the next generation:
- Be Proactive. In developing your succession plan, it is best to emphasize a proactive approach in order to avoid any surprises. This can mean having those tough (but crucial) conversations with your spouse and children early-on about whom you want to succeed you, and make sure they are interested in taking over the business — never assume this is the case. Don’t wait for an unexpected event (e.g. illness or other serious complication) to force you to make these decisions – a spontaneous change in leadership could cause a serious business disruption, costing you dearly.
- Communicate Clearly. Express your business wishes and desires to whoever is succeeding you. Have a heart-to-heart talk about your expectations as well as theirs. Full disclosure is always the best policy. Relationships between family members that are based on open, constructive communication, as well as trust and mutual respect, are the ones that tend to be most successful. Also consider how your non-family employees may react to, and be impacted by, the leadership transition. Use this knowledge to strategize when and how you will tell them about the transition – the timing of this communication can be critical.
- Train for the Transition. Before handing the reins over to your successor, be sure to include the necessary extensive training and mentoring, even before the transition process. Cultivating the next generation’s capabilities and transferring your knowledge is one of the most important steps in transitioning leadership and keeping business operations running smoothly and effectively.
- Manage Conflicts and Emotions. While it may be impossible to dismiss the many different emotions that arise during a transition, it is possible to manage them in a careful way that won’t prevent your business from moving forward. Be compassionate about how your family and non-family employees are feeling and try to develop a shared understanding. Though it takes time and dedication to work through emotional issues, remain committed to managing and resolving any conflicts of interest immediately, before they impact the business.
- Seek Expert Advice. To successfully navigate all the “ins and outs” of handing off your business to the next generation, consider working with trusted experts, such as an estate and trust attorney, certified public account, and financial advisor to discuss your succession plan and help you manage specific details involving your finances and other issues. Enlisting these third party advisors to work together in the overall planning process will be a huge asset, and help you avoid costly mistakes.
Above all, remember that from start to finish, it takes a considerable amount of time to transition your business to the next generation of leadership. Being patient, proactive, and communicating the details early-on is key. Working with third party consultants to help you get the ball rolling, could save you from unnecessary headaches and difficulties throughout the process.