31 Mar Succession plan vital to the longevity of a business
“Choosing a successor is the most important business decision you will ever make.” – Jack Welch, chairman and CEO of General Electric from 1981 to 2001.
I write quite often on this blog about the importance of having an estate plan in general and a will in particular. God forbid, if you were to die today without a will, you would likely leave behind a mess for your family to clean up.
But today’s topic is a little different.
What happens if you’re a small business owner and you die without a business succession plan? Unfortunately, your family business could die with you.
Many small business owners don’t have a true succession plan
Whether we’re talking about a small business or a giant corporation, companies generally have an idea of who will take over when the leader retires. At publicly-traded companies with a CEO and a board, the plan is typically more detailed. The plan to find a slew of candidates is carefully considered and interim leadership usually comes from within to keep the company afloat while a search is underway.
At smaller and even mid-sized businesses, though, this can sometimes be a handshake agreement with the person next in line — like a relative or long-time employee.
And if you’re retiring, you’ll still be around to usher in and oversee this process successfully. But if you die suddenly and there’s not much in the way of a written agreement, chaos could ensue.
A true succession plan won’t just include what happens when you retire but also if you die before your retirement age. A true succession plan has been written down, reviewed by an attorney and shared with all involved parties.
How to choose a succession plan
Succession planning doesn’t have to be complicated. Quite simply, it’s choosing the person you’d want to run your business when you’re no longer around. But picking the perfect leader can be tricky. I suggest looking for the following qualities:
- Be objective. Much like picking an executor for your will, you may not want to select someone simply because you’re related to them. Like many other things in your estate plan, you want your business to make a difference for your family. That makes sense. But if you leave it in the hands of someone who is incapable of continuing its success, you could be hurting more than you’re helping. Studies show that just 30 percent of family businesses survive the transition from the first generation to the second generation. And among the ones that do survive, less than half make it to the third generation. If there’s someone in your family who knows the business well, it would make sense to hand the reins over to them. Otherwise, you’d be wise to remove emotion from your decision.
- Consider the future. You’ve worked hard to build a successful, reputable business. You know what it’s taken to get your company to where it is. But you don’t have a crystal ball. If something were to happen to you today, you need to have someone who your family can count on to carry your business into the next decade and beyond. Making this decision won’t be easy but it will give you comfort.
- Try it out. If you have a successor in mind, consider doing a trial run. Take a vacation and let them run the show for a week. See how it goes. When you return, answer their questions and listen to their concerns. Then give them a chance to run the business for a longer period of time. If they eventually take over your business, they will be stronger for having this experience.
If your business is doing well enough that you know it will have a future, you need to take key steps to ensure its future success. That starts with a succession plan.