Succession planning is important in any business, but it's sometimes overlooked in family-owned operations. This is a big mistake. There are many family-run companies that no longer exist because of a poor succession plan or none at all.
The plan needs to be well thought out and discussed with everyone affected. Don't just assume that a son or daughter will want to carry on the family business. Even if your children say they'll take over, they may not have the true desire required to continue a successful operation.
The "heir to the throne" also may not have the business skills to succeed after a parent (or aunt, uncle, etc.) turns over the reins.
Another question that needs to be settled in the case of multiple potential successors (for example, more than one child): What responsibilities will each person have upon succession? It's important that the details be worked out early, because, in the case of an unexpected death or disability, succession might occur sooner than planned.
You also need to address the involvement of the next generation. In some situations, the retiring family elder has adult grandchildren — some who may already be working in the business.
Beyond the discussion of the roles of younger family members, you'll also need to outline the times for major transitions, barring unexpected illnesses or death.
In addition, you want to make sure that the future leaders of the business have the proper training. There are several different options. One is to have younger family members work in several different areas of the business. Or have aspiring family business leaders get some experience in another, non-family business to learn alternative ways of doing things.
The importance of preparing for succession can't be overemphasized. Neither can the importance of transitioning the business in an orderly fashion.
Sometimes, as planned retirement nears, elder family members don't want to let go. This can cause resentment on both sides. Naturally, the elder family members want to see the business they built (or took over, if already a second-generation business), continue to succeed as it did under their leadership. They can be concerned that the company won't flourish without their direction.
At the same time, the younger family members may think they can bring the business to even greater success if the older relatives would just step aside. This is where a scheduled, gradual transition of management and leadership responsibilities from one generation to the next can help.
As they turn over the reins of the business, elder family members can be compensated through preferred stock in the company. They can also look to stay involved in business, if not directly, perhaps through participation on an advisory board or as a member of an industry group or association.
Such actions recognize the contributions of retiring members and help them remain engaged with the business and the professional side of their lives. Meanwhile, the new manager and active relatives can operate the company as they wish and plan for the future.
Once retiring family members are no longer immersed in the daily grind of running the business, they may be interested in pursuing non-business community activities, personal hobbies and travel that they never had time for before. The family should encourage this because it will help them further transition away from the company.
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