When a business is closely held or family operated, outside employees may feel comfortable in the work environment and even think of the business as an extended family. Whether you inherited your business from a parent or grandparent, or you started it from scratch, you have likely built a company you are proud to own and a place where others enjoy working.
Nonetheless, you certainly realize a time will come when you will not be able to remain at the helm, and someone else will need to take over. You may assume this person will be your eldest child, but this may not be the most practical solution. In fact, this move is one of the common mistakes that business owners make and has been the downfall of many family businesses.
Factors that may cause tension
A solid succession plan may take about three years to put into place. You may have a successor in mind — whether a child, other relative or someone outside the family – and that person will need time to master the finer points of your business. Mentoring your successor includes slowly adding more responsibilities while you pull back from the company a little at a time.
One of the most common mistakes business owners make in preparing the company for a transfer of power is holding on too tightly when a successor is ready to take over. A family business is an emotional tie, and you may have to prepare yourself mentally for the separation. This may be especially difficult if other conflicts complicate your choice of successor, such as:
- Your successor does not seem as committed to the company as you are.
- You and your successor have philosophical differences about running the company.
- There is a personality conflict between you and your chosen successor.
- Sibling rivalry creates tension between your successor and your other children working in the company.
- Your chosen successor lacks the skills to maintain growth and profits in the business.
- Your chosen successor doesn’t want to carry on the business.
Business advocates suggest that parents who intend to turn the reins over to a son or daughter should involve their children as much as possible in day-to-day business operations. Open communication with family members also allows you to see the perspective of those who may one day run your business, potentially eliminating issues that generation gaps may present.
Setting the stage for a positive succession
Making your children part of the management as early as possible may instill in them a passion for the company that may not grow if you keep tight control over the business. Regular family meetings will allow you and your potential successors to communicate freely and gain appreciation and respect for one another’s strengths and management styles.
Turning the business over to the next generation does not have to mean leaving your company vulnerable to disputes and uncertainty. Having a solid succession plan can improve the chances that your business will enjoy success for many generations.