Every business needs to have a successor. May it be a relative, a loyal and skilled employee, or anyone else who can meet the qualifications. Usually, for most companies, family members become the heirs. It may seem easier since they already carry the family name, and they know the ins and outs of the business. But that won’t always be the case.
This is why there are many ways that one can come up with a great succession plan. But, of course, this would take a long time. Even with years of knowledge, a transition would always be hard at first. With that, there are some factors that one needs to consider beforehand. From preparing your heirs, to actually passing on the business to them.
Why People Choose Family Members
Now, as mentioned, most companies decide to pass down the business to a relative. And that’s completely understandable. Of course, it’s easier to build trust and stability.
As for the successors, they already have a sense of familiarity. How the business works, what they need to do, and how to move forward. It’s also easier to learn new things about the company. They can easily ask you for advice and some guidance at times.
Money is a big concern for pretty much any company out there. With family members, you’ll have lower training costs, and there’s also a lesser chance of theft.
Conflicts May Arise
Despite all the benefits that one can get from a family-owned business, there will be some downsides. In most cases, families have more than one child. As a result, some may pick the eldest since it’s already assumed that they’d be more mature in handling things. For some, they’d choose the one who’s more dedicated since the beginning.
No matter what they decide on, there’s always a chance that conflicts would arise. This is why creating an equal distribution is ideal. Most families would still choose to divide the wealth to all children. Even if, let’s say, one of them is pursuing another field and isn’t all that interested in business.
When it comes to the company itself, they can have voting and non-voting stocks. In that way, the one assigned to handle the business gets to have more say in every decision. As for the ones who weren’t given the ownership, the families can give them a bigger share of the benefits.
In some cases, they choose to hire trust litigation lawyers to lessen the chances of disputes. The stress of passing on the business is already too much to handle. Whether you own a real estate business in Chicago, or a large manufacturing firm in Minnesota, it’s always better to have someone help you in legal matters.
Passing It Down
As mentioned, training your successor would take a long time. You’d need the guidance of professionals for a better transition to take place. From attorneys, insurance agents, and CPAs. All of them will help keep the business intact during this period.
Like in any other relationship, communication is key. A difference in generations may cause problems. You may have contrasting approaches towards handling a business. Your successor might be more open to change, while you’re more traditional and would like things the way they are.
This is why you should go over every single detail. Discuss the roles and responsibilities that one needs to fulfill. Also, talk about all the plans you have for the company in the following years. You can ask for their input and always make sure to leave room for discussion. You may be able to incorporate both your ideas into a great business plan.
Exit strategies are also crucial for both you and your successor. Some may opt to have the heirs buy the business completely. But in some cases, they create another plan. For example, they may receive lower pay for the first few years. In that way, it’ll be like they’re buying and earning the company.
Keeping Them Up-To-Date
Instilling a sense of urgency in your successor is also a must. In the world of business, things can change in a matter of seconds. This is why being able to adapt is one of the best qualities that a leader can have.
With the global situation today, trade in goods is declining. So for those who own a business in, let’s say, the automotive industry, they need to continue to strive. Since services are having more value, adjustments must take place. Instead of investing in physical labor, one may opt to focus more on hiring employees for knowledge-intensive purposes.
These are only some things that one needs to consider before passing on a business. Yes, it’s a lengthy process. But with the proper knowledge and people backing you up, it’ll be successful in the end.