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How to keep your business alive in the future

By Isabel Graf, PhD    

Seventy. That number could be the age when you plan to retire. Or, it could be howfamily biz many millions of dollars you want your company to make.

In realty, seventy is the percentage of owner-operated businesses that do not survive past the original founder, according to research from the Family Firm Institute (www.ffi.org).

In another study, the Phoenix Company (www.thephoenixcompany.com) found that two-thirds of family business owners (66%) have no business succession plan. The survey cited lack of a succession plan as one of the primary reasons that these businesses fail, along with poor estate planning and inability to pay estate taxes.

So, why do business owners fail to prepare for succession? Often, owners will say that they are too busy with the day to day work, or that retirement seems far away, especially with the current economic conditions. Regardless of the reasons, it is critical for business owners to prepare for the eventual transition of the company.

Succession planning is the process of preparing for the leadership transition. There are several steps to creating a succession plan, including deciding on which jobs need successors, assessing the individuals who are potential successors, making the decision what to tell the potential successors, and preparing the successors for their eventual roles.

Here are eight tips to help you make a smooth leadership transition through succession planning:

1. Start your planning early. Even if you don’t plan to retire for five or more years, you could change your mind, or something could happen to you. Plans change— yours, those of your family members, and those of your key leaders. You want to be able to adapt your plan as circumstances evolve.

2. Think about how you want your business to continue. Do you want to pass it on to a family member, sell to a key employee or third party, or form an ESOP (employee stock ownership plan)? Founders usually want to see their companies continue after they retire, and they may retain financial interests in the businesses. Regardless of how you handle the transaction, it’s in your best interest to ensure that the business remains successful. You need to prepare yourself, your employees, and your customers.

3. Identify the jobs critical to the success of your company— now and in the future. These positions certainly include the CEO and other top executive positions, but don’t neglect other key managerial or supervisory roles. Do you have the right people in those critical jobs now? Should, or will, these people continue in these roles once you leave? Your company needs the right team in place to continue as a viable business. Do you handle multiple roles? If you do everything, you need to have people who can take over the various roles you now handle.

4. Identify the successors; play to their strengths. Do you want certain people to hold certain jobs? Do these people have different expectations than yours regarding their roles in the company? Which individuals are right for which roles? It’s not just the role he or she wants; you need to determine if the person is the right fit for a given role. Even if you plan to pass your business on to your family, is there a non-family member who has been critical to your company’s success? If yes, what role should that person have after you retire?

5. Prepare yourself for this transition. Yes, you want to retire, but will you be ready to turn the reins over when the day comes? Is your life and identity so tied up with your business that you will have difficulty stepping back from the business? Can you start to give power or authority to the successors so that they have time to learn from you? Or, do you feel the need to remain completely in control, until the day you retire? Do you expect to have some kind of role in the business after retirement? Owners who are retiring may benefit from working with a leadership transition coach.

6. Discuss your succession plan with the parties involved. Ensure that they understand what you expect of them and why you made the decisions that you made. You want to minimize the stress and conflict as much as possible upon your retirement; you want the successors to focus on the business and not on making power plays for different jobs.

7. Evaluate the successors. Consider two elements when evaluating your successors: knowledge and skills to perform the job and the right personality traits to be successful in the role. Even if someone has the right technical background, does he or she have the right personality? If it’s your personality that drives your business success, will your successor be able to step into your role and be as successful? There are different kinds of assessments that can help determine if an individual is a good fit for a role. From these assessments, you can decide if an individual needs formal training or education or leadership development. You, or a coach, can work with the individual to develop their skills, build on certain personality traits, and find ways to compensate for any weaknesses.

8. Prepare the successors for the transition. Identify roles in the business they can assume now, so that the company changes hands without any disruptions to employees and customers. Help them learn as much about the business as possible. Provide them the appropriate education or training.

Once a formal, written plan is created, do not put it on a shelf and wait until the day you retire to implement the plan. Review the succession plan annually or as needed, just as you review your business finances. Things can, and will, change.

Finally, discuss the plans with your financial advisor and your attorney. Your advisors can discuss your retirement plans and may have recommendations on how to transfer authority and on how to address the legal aspects of your plan.

Isabel Graf, PhD, is a principal with Insights2Talent, a succession planning and leadership development consultancy. She can be reached at www.insights2talent.com or 904-382-8755.


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