When retirement is on the horizon, you may be wondering how soon to start looking for your replacement. Knowing when to identify a business successor, and how to start the process, can be essential to a successful transition of power to the next generation for your business.
Don’t Wait Too Long to Begin Succession Planning
Most family business and small business owners wait too long to begin succession planning. They may not want to relinquish control, their departure may come on suddenly, or they may be caught up in the day-to-day operations of the business. But waiting too long will endanger the future of the company, and the value of your retirement investment.
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When to Choose a Business Successor
You should start to identify a business successor well before you plan to leave the company. Starting to work with a business consultant 5 years prior to retirement, or even earlier, can increase the value of the business and ease the burden of the transition. You need to start early enough ensure that you have enough time to:
- Clarify the direction of your company
- Determine your own role after retiring
- Identify the right candidate
- Train them up into the role
- Introduce them to staff and key customers
- Transition your duties to them slowly.
Rushing the process will put a lot of strain on you, your transition team, and your incoming business successor. If you have a firm retirement date, work backwards from there, setting aside dedicated time for strategic planning, recruitment, interviewing, and introductions.
What Traits are Essential in a Future Business Leader
As you start to identify candidates, you will likely have a wish list of traits for your ideal business successor. Some may be essential for clear management and leadership. Others may be specific to your industry. However, the right answer may not be to simply choose a “mini-me” – someone who would copy your business strategy directly or is closely related to you. If you want your company to thrive, your priority should be to identify a business successor who:
- Has their own vision for the future of the business
- Aligns with your company’s strategic plan
- Is self-aware of their strengths and opportunities for growth
- Clearly communicates and listens to those around them
- Has emotional and cultural intelligence
- Will put your company’s needs before their own ambitions
Leadership vs Ownership: When to Name More Than One Successor
As you identify possible business successors, remember that you need not find everything in one package. Yes, your company will need a CEO who oversees day-to-day operations. However, that person may not be the successor to your ownership interest. For example, you could retain ownership and build inheritance into your estate plan, while allowing your business successor to take responsibility for the company during your retirement. You could also choose a non-family member to manage your business, while passing ownership on to children or other relatives.
In addition, if your business has grown significantly under your leadership, choosing a business successor provide an opportunity to divide up those responsibilities among different C-suite employees:
- Chief Executive Officer (CEO): Maintaining and communicating the company vision
- Chief Operating Officer (COO): Overseeing the day-to-day operations
- Chief Financial Officer (CFO): Managing the money
- General Counsel (CLO): A licensed attorney managing contracts, legal issues, and vendor agreements
- Chief Information Officer (CIO) or Chief Technology Officer (CTO): Industry specific leadership that makes sure your company has the updated technology it needs
If your company can’t support an entire suite of leaders, you might also consider where contractors, consultants, or vendors can supplement your business successor’s skillset.
When to Announce Your Business Successor
However, you shouldn’t announce your business successors immediately after identifying them. Speak to them privately and onboard them into the role gradually, offering training and executive coaching to fill any gaps in their skills. Then, as your retirement date approaches, you can begin to introduce them to:
- Your board of directors (if you have one)
- Key stakeholders in the company individually
- Employees who will report directly to your business successor
- Your staff at large
- Key business partners and clients individually
- The general public through a press release or announcement
Knowing when and how to identify and introduce your business successor requires finesse. You may not be able to do it alone. Consider working with a business consultant to provide you with objective advise and guidance as you select the next leader for your business.