How Ready Are You To Transition Your Family Business? A Succession Checklist
What Is succession planning?
Many people think succession planning is estate planning (i.e. transfer of ownership). Instead, it is a formal statement of what will happen to the management of the business when the owner/manager is o longer running it. Consider it to be a "will" for the business. Succession planning in a family-owned business is often challenging, because of existing family dynamics which can make it more emotional.
Most family businesses are not ready
The statistics are sobering. Of most family businesses:
70% do not survive transition to second generation; 90% do not survive to third generation; and 95% don't have a succession plan. All too often, business owners are caught up in the day-to-day pressures of running their businesses and put off planning for the future of their businesses. However, succession planning is a process - not an event - which can take one to two years to complete.
In fact, three to five years may be needed for the actual transition in order to build the successors' skills, and gain stakeholders' confidence, for instance your business's bank, customers and employees.
The most important thing is to start early and don't wait until you are ready to retire, since your planning should be in place in case there is an unexpected death or disability.
Below, we have created a "succession checklist" so that you can better understand the steps in the process.
Decide whether the business should continue as family-owned entity. A business won't succeed if the leader doesn't have passion for the company. Ask your children if they want to work in the business. Ensure the next generation is committed to the business and not staying for the wrong reasons. Don't be afraid to consider outside sale. Determine whether your family competently cope with the various issues and decisions which will have to be made (i.e. aging, death, inheritance, competencies of the next generation)? You must be very honest in assessing whether your children are capable of running the business. Do they have the competencies that are required to ensure the success of the business? The business leader must agree to manage the process and the transition of leadership to the next generation. The leader has to decide on a date of when he/she will step down. The leader should progressively reduce his/her involvement, and be able to 'let go'. The leader needs outside interests, but may continue on as a 'goodwill ambassador'...
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