Why Business Succession Doesn't Happen Overnight

Business succession isn’t a last-minute process; it requires careful, strategic planning and ongoing support. In fact, small businesses without succession plans often fail when the owner or a senior-level partner retires or dies simply because there was no plan in place for handing off the business to the next generation of leadership.

Clearly, planning early is key to a successful hand-off. Business succession can be quite a process, but it can make all the difference when leadership changes down the line. In this blog post, we’ll look at the reasons it’s important to start your business succession plan early, and look at some of the more common business succession strategies.

 

1. It Takes Time to Find Your Replacement

Good leaders know that it’s not enough to be working on their own skills; they also need to be preparing someone to replace them when they’re gone. 

When it comes to business leadership, finding a person with a solid resume isn’t always enough. The right leader for your business must have a combination of qualities that align with your company culture, your industry, your goals and strong business acumen.

Start by looking within your business. Do any of your current employees have the right leadership skills for the job? Will they be able to grow into the role? Does their vision for the business align with yours? Can they fund the purchase of your business? If yours is a family business, this may be a particularly emotional decision, and it might be helpful to bring in a third-party consultant to help navigate common succession planning problems.

 

2. It’s Hard to Let Go

Many business owners refer to their business as their baby, and it can be hard and emotional for business owners to talk about the idea of passing the business to another leader.

Often the driving force behind business owners’ entrepreneurial goals are linked to a passion or a vision, not necessarily a financial goal. For many business owner’s there are high levels of pride and achievement and letting go of the business means losing their relevance in the world. Every criticism can be taken personally, and likewise every compliment makes you feel like you’re on top of the world.

This connection to the business means that every decision around the future successor is so much harder, especially when you consider the idea of learning to NOT work.

However, in order for your successor to learn to truly take the reins, they need to start to learn to make decisions on their own. Likewise, you will need to learn to separate yourself from your business, so the business and your prospective successor can thrive.

 

3. You’ll Need to Provide Training

Consider this: if you need to put together a piece of furniture, it’s much quicker and easier to assemble it with an expert there with you to explain each step than it is if you just have a list of written instructions.

Likewise, if you want your business succession to progress seamlessly, have an expert advising and explaining each step to you. If you simply leave a list of legal instructions, your successor might flounder, or even worse, your entire succession plan may fall over.

 

 

In order to determine what kinds of training to offer, identify critical functions of the company and then consider how you prepare your successor in each of these areas. Additionally, your succession expert can perform a high-level review of your potential successors on areas like the business’s financial performance, business development, people and culture, vision and strategy, processes and procedures, to identify and potential risk areas in your succession plan. 

Your successor needs a solid understanding of the breadth and depth of your business, not just a list of executive duties. Take time to introduce your prospective successor to all aspects of the business.

 

4. Create a Workable Timetable

Do you know when you’d like to shift control of the company over to your successor? If so, work backwards to create a timetable that gives you ample room for finding your successor, training employees, planning your own retirement and executing your succession plan.

While the planning of your own retirement may not seem to be related to your business succession plan, it is in many ways. If you have other officers who will be stepping away from the business, encourage them to work on their own succession and personal plans so nothing is left to chance. 

Businesses whose owners help to implement their successors are much more successful, and their transitions run much more smoothly. Once you’ve made proper succession preparations, you should be ready to hit the green light.

 

Possible Succession Strategies

There are many different ways to manage business succession, and the one you choose should suit your business, your plans and your successor’s comfort level.

As you discuss possible strategies with your executive team, consider the following: 

• Creating an equity framework
• Using a buy-sell agreement to transfer your business interest
• Creating trusts for the transfer of business assets
• Creating short and long-term business strategic plans (with succession on the radar)
• Setting up private annuities
• Establishing a family limited partnership

These and other business succession strategies can help you to achieve your goals and successfully pass your business on to the next generation. For a more comprehensive look at the ins and outs of business succession, download our popular Succession Planning 101 eGuide.