Business Succession Planning
Think of business succession planning as a proactive contingency strategy that will ensure that the business will continue to run smoothly and without interruption after the business leader moves on to new opportunities, retire, or pass away.
The succession plan should be reevaluated and updated annually or as changes occur within the company. An element of the evaluation process is to consider the skills of current employees, to identify potential replacements within the company, or determine if outside candidates may be better equipped to take over. Once the successor is identified, a formal training process should take place so that the person is well-prepared to assume control.
In large companies, the board of directors typically oversees succession planning and may turn to mid-level employees to advance for the higher-level positions. For small businesses and family-owned companies, succession planning often means training the next generation to take over the business.
Attorney Contact: Marc R. Hertrick
Succession Planning Strategies for Family-Owned Businesses
Family businesses with succession plans in written form are better prepared for the future because they have an instrument to reflect upon that outlines what’s important to them in terms of family dynamics, the business itself, and the family’s legacy.
Engaging the next generation early in succession planning discussions helps to set the stage to envision how the next generation hopes to contribute to the longevity of the family business. A collaborative dialogue will uncover the younger generation’s personal goals, career aspirations, and vision for the future.
In many family businesses, the tension between the eagerness of the next generation to learn the business and take control, versus the founding generation’s unwillingness to relinquish control, can create serious conflict. This can happen when the founder does not trust the next generation to assume the responsibilities of the family business. A stalemate can throw family dynamics out of harmony and risk the very future of the family business. An even worse scenario can occur if the founder suddenly suffers a medical impairment and loses the ability to control the business’s operations. Even worse, the founder dies suddenly without a succession plan in place.
Families need to have intentional conversations to create succession planning strategies.
Just like any organization, family businesses involved in the succession planning process will need to strike a balance between power and control.
They may face conflicts and questions along the way, such as:
- Could the parent/child relationship be damaged over decision-making for the company?
- Does the son or daughter who would likely assume the business believe that the founder would give them sufficient autonomy to be effective?
- Is the founder likely to override the next generation’s decisions and minimize his/her authority?
- And, for the long-term, are the two generations aligned about the family business’s long-term legacy, the family’s wealth planning objectives, and its philanthropic endeavors?