There’s an old saying regarding family-owned businesses: “Shirtsleeves to shirtsleeves in three generations.” It means the first-generation owner started in shirtsleeves and built the company up from nothing but, by the third generation, the would-be owner is back in shirtsleeves with nothing because the business failed or was sold.
Although you can’t guarantee your company will buck this trend, you can take extra care when choosing a successor to give your family business a fighting chance. Here are seven steps to consider:
1. Make no assumptions. Many business owners assume their son or daughter wants to run the company or that a particular child is right for the role. But such an assumption can doom the company.
2. Decide which family members are viable
3. Look at skills and temperament. Once you’ve settled on a few candidates, hold private meetings with each to discuss the leadership role. Get a feel for whether anyone you’re considering may lack the skills or temperament to run the business.
4. If there are multiple candidates, give each a fair shot. This is no different from what happens in publicly held companies and larger private businesses. Allow each qualified candidate to fill a position at the company and move up the management ladder.
5. Rotate the jobs each candidate performs, if possible. Let them gain experience in many areas of the business, gradually increasing their responsibilities and setting more rigorous goals. You’ll not only groom a better
6. Clearly communicate your decision. After a reasonable period of time, pick your successor. Meet with the chosen candidate to discuss a transition
7. Work with your successor on a well-communicated transition of power. Once you’ve picked a successor, he or she effectively becomes a business partner. It’s up to the two of you to gradually shift power from one generation to the next (assuming the business is staying in the family). Don’t underestimate the human element and how much time and effort will be required to make the succession work. Let us help you meet and overcome this critical challenge.
If you have questions or would like help in developing your own family business succession plan, give us a call!