Most family business owners know that a good succession plan is crucial to the health and success of their businesses and their families. Family business owners can’t just walk away from their businesses and expect them to continue to grow and thrive in their absence unless they have proactively established a succession plan. In a perfect world, the succession plan will position the business to continue to thrive even after the business has been passed on to the new owners.
Many owners think a succession plan provides benefits only after a catastrophic event like their death or disability. However, a good succession plan includes more thought and strategic planning than simply naming a successor to head the company once the current owner is no longer able or willing to do so. It also provides more benefits than just providing for the owner to continue to receive an income stream during the retirement. A good succession plan does those things, but the process of arriving at that plan can help a business be better managed, with happier employees and be more profitable now.
Planning and preparing for succession includes four key areas for consideration:
Training the next generation of business leaders
Owners who know what it takes to continue their family’s legacy know that the successors who will lead the family business in the future need to be mentored and trained not only in the nuances of the family’s particular business, but also in managing its people, processes, financials, and all other aspects of running the family business. These well-trained employees can provide insight, thoughtful leadership, and strategic planning to help the business thrive and grow in the present — long before any transition to new ownership begins.
Encouraging growth through the careful management of important customer and vendor relationships
An owner who wants the business to succeed beyond his or her generation trains and mentors the chosen successors in building relationships and connections that will continue to provide value to the company. A strong succession plan lets the company’s important customers know that they will continue to receive the same high-level of service once the owner turns the company over to the successors, making it less likely customers will leave for a competitor upon the change in ownership. As relationships with key customers and vendors are developed with the next generation, the bond between the business and these important contacts becomes that much stronger. This, in turn, provides more opportunity for the business to expand and grow.
Establishing and training the next generation in a company culture and mission that supports business growth and profitability for the future
Training and mentoring the next generation in the culture, ethics and mission of the business are just as important for the future of the business as the technical aspects of the business. Once an owner begins recognizing and thinking about how his or her company’s culture will affect future profitability, he or she may decide that the culture and mission, which may be dear to the heart of the owner, is not yet strongly ingrained in the future leaders of the business to carry the business forward or profitably grow it. The process of succession planning can provide the opportunity to examine these important fundamentals and, if needed, make changes now that will affect the business many years down the road.
Preparing key employees for the transition
Key non-family members in the business are often aware of and concerned about a business owner’s lack of succession planning. In many cases, they’re happy with their jobs under the current owner but have no idea what to expect once the owner leaves. As the owner approaches retirement age, key employees’ personal plans may consist of keeping their resume up to date and planning to exit the business (perhaps to a competitor) as soon as the current owner is gone. Even worse, key employees may pre-emptively decide to take a new job due to the lack of certainty in their current situation. Having key employees not focused on the long-term future of the business because they don’t know what the future looks like is a significant hazard to the business’ current viability. Part of the process of succession planning should include making key employees aware that they’re part of the succession plan and letting them know they’ll be respected and rewarded as part of the future success. Employees who are engaged, committed and forward-thinking are better able to help the business grow and thrive today.
Thinking about succession planning focuses the mind on the future. Preparing for the future by training the next generation, extending relationships with key customers and vendors to others within the business, improving or strengthening company culture, and including key employees in the plan can enhance the business and make it stronger and more profitable today.
Patrice Sebastian is the director of forensic and valuation services for WebsterRogers LLP. She focuses her practice on helping business owners create value in their organization and preparing clients to sell or transition their business. She can be contacted at 803-312-0001 or psebastian@websterrogers.com.