With many family businesses, the time to think about succession planning starts on day one.
Succession planning is optimising a business for the owner to exit it. Daniel Wong, owner of TAB Brisbane Inner North guides business owners looking to create succession plans. He explains: “Succession planning is having a written plan on how you will leave the business and under what conditions. This is a live document that is used to guide strategic business decisions.”
It’s a complicated subject, sometimes fraught with emotional baggage, but is critically important, nonetheless. After all, lacking a chosen successor and development plan, your family business will likely ‘die along with you’ or, just as importantly, the business could become an insurmountable burden to the family members left behind.
Daniel says he often sees businesses making mistakes when it comes to succession planning. “The biggest challenge business owners have with succession planning is that they can’t see how succession planning can benefit them in the present moment. As a result they do not invest resources such as time and education on their succession plan leading to an over or under estimate its difficulty. Leaving it too late makes business owners reactive with their succession planning rather than proactive which will deliver much better outcomes.”
Clearly, these scenarios are untenable for family business owners and CEOs. That’s why now is a good time to think about succession, keeping these tips in mind:
Start planning today
As noted, it’s vital to begin thinking about business succession planning as early as possible. While you don’t necessarily need to have a specific individual in mind (this could change over time), frame your strategy around what’s best for the company, its employees, customers, and other stakeholders. This should help guide your most productive thinking on the subject.
Daniel says: “Every business including start-ups need an exit strategy. The value is in the planning not the plan itself. The exit strategy will be constantly changing and require different levels of detail and implementation. Without an exit strategy, the business owner or executive team don’t have any guidance on where to take the business.”
Planning should be ongoing, and adapt to the business.
How often an exit strategy should be addressed depends on how often the business makes strategic decisions. Daniel lists out some time frames for how often you should be reviewing your succession plan.
- At the beginning, the exit strategy does not need to be regularly reviewed as changes will be incremental and have low value to the business.
- When the business is going through rapid growth, to leap past the death zone (when the business has too many or not enough non-income producing managers), a review of the exit strategy is required at least annually to remain relevant and provide a framework for strategic decision making.
- When a business owner starts thinking about their retirement planning, their business succession planning needs to be part of that conversation with their accountant and financial planner.
- And as a rule of thumb, if the business owner plans on leaving within the next three years I would recommend the exit strategy tactics and metrics are reviewed monthly using the services of a succession planning coach.
Engage family members in a succession discussion
As owner or CEO of a family business, “making your own succession plan and then announcing it is the surest way to sow family discord,” says The Balance Small Business. Instead, engage with family members to learn who “wants to be involved directly and who is focused elsewhere.” This helps identify individuals with the most incentive to keep the business going.
The Family Business Consulting Group suggests talking to your children along these lines: Your interest in the business is welcome, “but it’s clearly not the easiest way to live or the only way to live.” Rather, entering the business is “one of your many options and we will support and encourage you” regardless of your decision.
Talk to outside advisors
Your succession planning efforts will benefit considerably from enlisting the advise of outside advisors (a lawyer, financial advisor, membership in TAB). Trusted individuals can offer insights you may not come up with on your own, and they will also alert you to potential pitfalls or obstacles that aren’t immediately evident to you.
Daniel says: “Get a business coach with experience in finance, retirement planning, business ownership and succession planning. It really does make a difference because they will help you become wiser, wealthier and happier.” A TAB facilitator can help with this.
Make employees aware of succession planning
While it’s not necessary or appropriate to involve employees directly in succession planning (unless the best candidate to succeed you is, in fact, a trusted employee), they should never be kept out of the loop. Why? As the US Chamber of Commerce notes, employees “have a right to know a succession plan is in the works” and because “your successor is going to need the acceptance and cooperation of non-family employees who may be the ones offering training.”
Your team is a critical business asset and should be consulted wherever possible.
As soon as you identify a successor, initiate training
Choosing a successor is no easy task, but once you pass this milestone, keep the momentum going. At some point in the not-so-distant future, he or she needs to start training in both the technical skills and soft skills of running a successful business. The chosen individual may or may not arrive with high-level leadership skills in place; whatever the situation, building those skills should be at the top of your priority list.
In many cases, training can extend over a year or longer, in order to have time to work closely together at the outset and then to allow this person to start leading on their own.
Want to learn more about succession planning? Check out our in-depth article, “6 Tips on Making a Family Business Partnership Work.”
If you’re looking to get assistance in creating a succession plan, get in touch with TAB to hear more.