So many business owners over the years have invested countless amounts of blood, sweat and tears to make their closely held businesses successful, only to one day have their doors shut and the business liquidated due to a lack of succession planning.
To ensure that your business legacy flourishes into the next generation you must engage in the proper mix of planning, communication and action.
While there are many reasons a closely held business can fail such as changes in markets and reluctance of the next generation to participate, the primary cause is lack of planning. Entrepreneurs, at their core, are devoted to growing a business, not handing it off. They want to be in control, instead of planning for the day they relinquish control. This, however, is a recipe for disaster. Waiting too long to create a business succession plan can result in the loss of valuable expertise and business knowledge, damage to customer relationships, costly time and effort to replace personnel and a clear loss of business continuity and momentum.
To prevent this from happening to you and your business, develop a plan early and follow through the 4 phases of the business succession planning process, Initiation, Selection, Education and Transition.
The Initiation phase involves bringing the next generation into the fold and teaching them aspects of the business. This can be next generation family members, key managers or staff or perhaps recruiting a third party currently outside of the business. A business owner must ensure to invite all potential transferees to the table so there are plenty of options to evaluate.
The Selection phase may be the most difficult in the process. A business owner must evaluate candidates and then determine who the future leader of the business is. Sometimes this involves having to choose amongst children or a number of qualified staff. To assist with the selection process, design a job description to determine all the necessary skills and all the critical responsibilities of the job then seek input from trusted advisors both inside and outside the business to get different perspectives on the job and on each candidate.
The Education phase is the time to transfer knowledge from current owner to future owner. It is also the time when the current owner loosens the reins and allows the successor to evaluate situations and make decisions. It is critical that the successor be given the opportunity to make mistakes. No successful business person built their business by being perfect right out of the gate. Don’t expect your successor to be. Coach the person and empower the person.
The final phase is Transition. If all other phases were properly executed the Transition phase should be a cinch. Transition involves setting a timetable to gradually exit from the business and turn the operation over completely to the successor. The Transition phase is most effective when it is planned in detail, on paper, and communicated to all stakeholders, both internal and external and the owner is committed to an orderly business succession plan. If properly committed the owner will timely exit the business, relinquish control and allow the successor to take all the knowledge from the Initiation and Education phases and continue to grow the business.
Remember this, business succession is a process and not a magical event. It takes years, not months. It also takes a clear commitment from ownership to make business succession planning a priority and not just something to do if they can “fit it in”. If done properly through the phases of Initiation, Selection, Education and Transition your business legacy can carry on to future generations.