If you have done the work to create and maintain an established family business, its survival is likely a key part of your identity, and your financial future. When it comes time to retire, you may expect to hand over leadership to your children, but are they as interested in taking up the mantle? Have you done the work to build your family business succession plan in a way that protects your financial needs and your legacy?
Start Building Your Family Business Succession Plan by Identifying Your Own Needs
As the owner of your business, you have spent years, or even decades, building its financial success, in part so that it can pay for your future retirement. Your plan for your family business is necessarily intertwined with your personal vision of your golden years. Before going too far into building your succession plan, you should speak with your spouse and a financial planner to identify how much you have saved for retirement, and what resources you may want or need to live out your years comfortably.
You should also consider what “retiring” from the business means to you. Do you want to retain ownership but hand over management? Do you feel you should have a say in the direction of the business following the transition? Or would you prefer to simply walk away? A business consultant can help you envision a successful exit from your business in a way that addresses your personal, emotional, and financial needs.
Be Realistic About Your Family’s Priorities and Your Own
Once your personal priorities are established, you must answer a critical question: who will take over leadership after you leave? For many traditional family businesses, the assumption is that the next generation, often the oldest son, will step into the role and act in the founder’s stead. However, that is increasingly not the case.
64% of family firms have adopted gender-blind policies in promoting leaders. In these cases, your daughters are just as likely candidates to serve as your successor as your sons. Also, family businesses are finding that increasingly, the next generation isn’t interested, or have not developed the skills to take up the role of CEO. If you bequeath your position in the business to a son or daughter without the interest and ability to carry on, your family business could end up being sold or even closing in the years after you are gone.
That is why it is crucial for your family business succession plan to include an honest, objective look at your family members’ priorities, ability, and visions, as well as your own. This is where a business consultant can be invaluable. A business consultant can evaluate successor candidates’ abilities and interests, improve transparency and facilitate communication between the generations, so that you can find the right successor and create a successful family business succession plan.
Ensure the Paperwork Matches Your Vision for the Family Business
Once you and your family members have a clear vision for the family business, you need to put that plan into action. Your business consultant can help with this, too, by coordinating professionals to:
- Incorporate your business so it survives after your own death.
- Create bylaws and shareholder agreements including voting and nonvoting shares to separate ownership from decision-making.
- When appropriate, establish an advisory board to guide future business choices.
- Draft strategic plans for you and your successors to facilitate the transition in management.
- Prepare personal estate planning documents to ensure the right family members inherit your shares in the business.
- Resolve conflict that arises as the transition is implemented.
- Make a financial plan to ensure family members have the funds available to buy out your shares.
- Obtain the appropriate insurance policies to cover contingencies in the plan.
Building a family business succession plan requires a careful balance of emotions, financial needs, and business acumen. Few entrepreneurs can find that balance alone. By bringing on a business consultant well in advance of your departure, you can ensure that the transition is smooth so you can enjoy your retirement.
David Stanislaw is an organizational development specialist with over 25 years’ experience helping family business owners plan for the future of their companies. Through business succession planning and executive coaching, David helps small and medium-sized family firms carry on and grow even as their owners retire and successors takes over. Contact us to meet with David to start building your family business succession plan today.