Succession Planning: What Family-Owned Companies Need to Know
What is succession planning, and how important is it for family-owned companies and small businesses? Here’s everything you need to know.
Every year across America, an estimated 100,000 businesses are passed down within families. These range from family restaurants, to family construction companies, estate agents, and any other business form you can think of.
This process itself is what’s known as a succession plan. But what is succession planning, and how important is it for you and your company?
We’re going to detail what exactly this phrase means, as well as what you should bear in mind when it comes to business succession planning. Finally, we’re going to give you a bit more information on the ideal succession planning process.
That way, you should know all about the importance of succession planning and what it means for you.
What Is Succession Planning?
Succession planning is a very specific form of business planning practice. It relates to any situation where a business owner begins to plan to retire from their company.
In these instances, the business owner must decide what happens to their company when they retire. They might want to sell the company, pass it to a manager, or close it entirely.
Whatever they choose to do, this process is known as succession planning. It’s particularly important for people who operate family businesses, both in the U.S. and worldwide.
This is of course because of the intricate nature of managing a company within a single family. A succession plan, which can also be called a succession planning strategy, is essential to making sure everyone within the family is happy with what happens to the business.
What Is Involved With Succession Planning?
There are a few key business areas that are encompassed by the succession planning process. These can include real estate agreements, like who gets to own any property owned by a business.
But most importantly, it refers to hierarchical changes in a business structure. Put simply, a succession plan is used to make sure a business knows how to continue operating without its founder or lead manager.
The plan will detail who owns the company should the current owner pass away. Or, they may hand over ownership once they retire.
Usually, this involves negotiations on shares among other factors. These areas all require particular attention when succession planning within a family business.
It’s about setting the family business up for future success.
When Do You Need a Succession Plan as a Family Business?
The next logical question to ask is when is a succession plan necessary for a family business. The immediate short answer would be anytime the current leader of the family, or business owner, is looking to retire.
The issue with this is that a plan always works better when you have more time to think it over. If you leave it until the last minute, you may not be making the right decisions.
Just like with writing a will, you should consider making a succession plan once you’ve fully established your business. It’s only by ruminating on this plan for a long time that you’re able to guarantee the continued success of your family and your company.
There’s also the question of the third-generation concern.
There’s an unspoken fear within every family business that the third generation is a risky area to enter into. Often, many businesses fail to continue operating once they’ve been passed down to the third generation in line.
This is often because the third generation is distanced from the founders of the family business. They’re often their grandparents, who they’re close to, but who lived in a very different world to the one the third generation grew up in.
This often causes third-generation family members to want change or a different approach. It’s essential that these are discussed during a succession plan, with all family members, so the company can move forward suitably.
How Does the Succession Planning Process Work?
There are 7 key steps to creating a company-wide succession plan. This is true whether you run a family business or a regular business.
First, the current owner must evaluate the company’s guiding vision, as well as how much it can grow in the future. This is something you should do regularly, to help expand your company where possible.
Secondly, the owner needs to decide who will take over key positions during the succession process. If you run a family business, this is something you need to decide together as a family.
Thirdly and fourthly, you need to make sure to find anyone else who can help your company, if needed, and then discuss the succession plan with your employees. It’s essential that you keep employees informed on any succession plans.
You should then begin to mentor whoever is set to take over the business. Make sure they know everything they need to know before the time comes. Leave nothing out; if they’re managing the whole business, they need to know every tiny thing that goes on at all times.
This process should then be repeated with any other managers or leaders you have in your business.
Finally, you should do a trial run of this succession plan. Let your chosen family member run the business for a quarter, and see how they do.
If they manage it, then you’ve achieved a succession plan and can comfortably retire. If not, return to further training, or reassess who should be in charge.
Where Can I Find Out More About Succession Planning and Business Management?
Succession planning can be something that family businesses don’t want to talk about. They may put it off because they find it awkward, or they’re simply unsure of what to do.
If you do need support with succession planning or any other business management, then we can help. It’s our job to make sure your company, and your family, remain positive and achieve your very best.
To find out more about how we can help you, or about what we do, please make sure to contact our friendly team directly.