One of the most difficult tasks a business owner faces is planning for the day he or she will be gone. Many of us find it uncomfortable think about our own mortality, so we just don’t. But when a business owner plans for tomorrow, the business increases its strength and its chances of survival.
Tom Plaut, a partner and national co-leader for succession planning services at Deloitte & Touche, offers the following facts:
– An estimated 95 percent of American businesses are family-owned.
– Of these 95 percent, only about 30 percent survive the second generation.
– Only 10 percent survive the third generation.
– Just 28 percent of family-owned businesses have developed a succession plan.
With odds like these, it is never too early to begin succession planning. Deciding a suitable successor is not a simple task and should not be done on a whim. In order to create a smooth and successful succession plan, there are many factors to consider.
Family Participation — To avoid favoritism, many owners leave their businesses to their children collectively. Unfortunately, family members often don’t see eye-to-eye, and differences of opinion can end up hurting the business. To avoid this, the owner should set up a family participation policy. Such a policy can include everything from how much experience a family member must have in order to join the business, to how many family members can join. To avoid family feuds, many owners allow only one member of each generation to enter the family business.
Work Experience — Being handed the reigns is not a birthright. Although many owners know that someday their children will succeed them, that is no reason for Junior’s first job to be executive vice-president. Like anyone else, the successor needs to work their way up. Additionally, the heir should gain experience in a non-family business. Seeing a world outside of the family can add valuable knowledge about how other businesses function.
A Board of Directors — Before handing over the company, a board of directors comprised of non-family members should be established. The incoming generation should use the board for advice and guidance. The board should be made up of people who know the business, people who, under different circumstances, would be handed the company. This way, no one is passed by, overlooked or offended.
Go Slowly — This kind of change cannot be made in one day. The speed of the transition will vary, but the replacement should be eased into the position, not dropped on it. Little by little, power and responsibility should be handed over.
Start Today — Even if 20 good years remain before one would even think of retiring, anything can happen. Before an owner hands the business to his or her children, he or she should be sure that the children want the business. Far too often, parents are eager for their children to follow in their footsteps, but never consider what the children want to do. Why give control of a company to someone who doesn’t want it? Everyone who is to be affected by the change needs to know what the plan is and where their place is in the grand scheme of things.
Handing over a company to a non-family member has its own pros and cons. In this case, the company is usually passed on to a savvy businessperson who has proved his or her worth and commitment to the company. Moving the company out of the family will produce far fewer rivalries or cries of nepotism. However, many owners find it more difficult to hand their company over when it’s not staying in the family.
Regardless of who takes control, it’s time to start preparing, because nobody lives forever.
