Before You Start: Understand Yourself and Your Current Situation
A mentor of mine would often tell me, “always keep the end in mind.” Proactive planning is a good recommendation. The stakes are much greater when it comes to succession planning. As soon as the entrepreneur starts a business, planning should begin to set the stage to optimize exit. The succession plan should be updated annually as circumstances change.
What are the benefits of planning head for business owners?
- The orderly transition of business either to family or third parties
- Financial security for spouse and family
- Liquidity for death related-expenses
- Minimize tax liability
- Provide benefits or security to valued employees
No single strategy can maximize all these objectives fully. The business owner should consider personal priorities to choose the most appropriate approach.
Many business owners dream one of their children will take over the reins of the company to continue their life’s passion and legacy.
Business owners should consider whether they desire for their child to lead the company is based on reality or emotion. Does their child currently have the capability to be a great leader? If not, can the protege reach the level with training and experiences? The financial fortunes of the family and employees depend on the business owner making this critical decision with a clear head. Seeking the opinion of trusted mentors or advisors can help to identify and eliminate bias. We work with skilled HR consultants that can help assess the situation, so there are no surprises.
The business owner should also have serious conversations with the child about her future. The child may not have considered her options before. Does she want to spend her career with the company? Does she have other goals and aspirations to accomplish in her life? The business owner could provide the child with an opportunity to work in the business in a junior role to help her clarify her choice.
Although the result of this process may be disappointing, a realistic view of the situation will grant the owner the opportunity to pivot to alternative strategies before it’s too late.
Give Successor Room to Succeed
A common obstacle to a successful exit by a business owner is a failure to give up control of the company. The business has been a constant part of the owner’s life for many years. Now, she must move to the role of a spectator instead of driving force in decision making. The urge to retain control may be unconscious to the business owner, even if evident to his successor and his family. A period of introspection is important to separate emotionally from the business.
Another common mistake is splitting leadership authority among too many successors. The business owner may think this strategy has benefited by motivating healthy competition and equal treatment of potential successors. The inevitable result of this strategy is infighting and obstruction. The best leader should be chosen as the sole figure of authority. The management team and employees will then be able to move forward with the primary goal – continuing to grow the company for the upcoming decades.
Be sure to follow our page for future articles on this subject in an upcoming series for small business owners. Please contact me to discuss future topics that would interest you related to succession and estate planning.