There’s an old saying regarding family-owned businesses: “Shirtsleeves to shirtsleeves in three generations.” It means the first-generation owner started in shirtsleeves and built the company up from nothing but, by the third generation, the would-be owner is back in shirtsleeves with nothing because the business failed or was sold. Although you can’t guarantee your company will buck this trend, you can take extra care when choosing a successor for your family business a fighting chance. Here are seven steps to consider:
Many business owners assume their son or daughter wants to run the company or that a particular child is right for the role. But such an assumption can doom the company.
External parties such as professional advisors or an advisory board can provide invaluable input for family succession plans. Outsiders are more likely to be impartial and have no vested interest in your decision. They might help you realize that someone who’s not in your family is the best choice.
Once you’ve settled on a few candidates, hold private meetings with each to discuss the leadership role. Get a feel for whether anyone you’re considering may lack the skills or temperament to run the business.
This is no different from what happens in publicly held companies and larger private businesses. Allow each qualified candidate to fill a position at the company and move up the management ladder.
Let them gain experience in many areas of the business, gradually increasing their responsibilities and setting more rigorous goals. You’ll not only groom a better leader, but also potentially create a deeper management team.
After a reasonable period of time, pick your successor. Meet with the chosen candidate to discuss a transition time line, compensation and other important issues. Also sit down with those not selected and explain your choice. Ideally, these individuals can stay on to provide the aforementioned management depth. Some, however, may choose to leave or be better off working elsewhere. Be forewarned: This can be a difficult, emotional time for family members.
Once you’ve picked a successor, he or she effectively becomes a business partner. The family business transfer of ownership is up to the two of you (assuming the business is staying in the family). Don’t underestimate the human element and how much time and effort will be required to make the succession work. Let us help you meet and overcome this critical challenge.