If you don’t have a succession plan in place, you’re not alone. According to PwC, only 18% of America’s family-owned businesses have a documented strategy for handing over the reins.
Of course, this isn’t just any business we’re talking about. It’s your business, and your family’s. ‘Those without a plan’ is not the group you want to be in. Like so many other important tasks, the hardest thing is getting started. Here are some key steps.
Choose the right business structure
Many small businesses begin life as sole proprietorships or partnerships. If you launched that way, it may be time to take another look at your structure. As The Balance points out, forming a corporation will legally separate you from your business—a key step toward a smooth transfer, even if that transfer turns out to be a sale to a non-family entity.
The right business structure can set your successors up for a reduced tax burden. And, if you desire to remain a sole proprietor, you can still make your wishes for the business known by including them in your estate planning.
[Read: Getting Ready to Launch? How to Choose the Right Business Structure]
Have a mission statement and a set of core values
You’re not just passing along some office chairs and a customer list. The big idea that launched your business is your why, and it’s what separates your family-owned business from the competition. Knowing you have clearly communicated your vision will help others understand their place in the organization and give you confidence to make the difficult decisions ahead.
According to a report from Deloitte, as time passes, the importance of family values increases, and may be the one thing that binds successive generations together. Stated family values can act as a roadmap for decision making, a magnet for like-minded employees and business partners, and a metric by which to measure success.
[Read: Writing a Mission Statement: A Step by Step Guide]
Succession planning is not the time to make assumptions about what the next generation wants and is capable of.
Choose your successor
Working with family can be complicated and few decisions are as fraught as choosing someone to replace you. Remember the purpose of a succession plan is to do what’s best for the future of the business, its customers, vendors and employees—not any particular family member.
Now is also the time to seek advice from a diverse group of non-family members. Start with your legal and accounting professionals for help with the basics. Job descriptions and skill assessments, for example, may narrow or broaden your list of potential successors. Board members, key customers and trusted vendor partners, whether or not they have specific personnel input, will be happy to know you are planning for succession.
Talk to prospective successors
Succession planning is not the time to make assumptions about what the next generation wants and is capable of. Including them in the process may reveal strengths and weaknesses crucial to your decision making.
According to Michael Klein, author of “Trapped in the Family Business,” this is the time for potential successors to ask themselves some honest questions. By reviewing their motivations, qualifications and the emotional weight of carrying on what the previous generation started, the children of business owners can assure themselves, and you, that the corner office is the right future for them.
Talk to non-family employees
You should keep key employees in the loop for several reasons: First, because they have a right to know a succession plan is in the works; and second, because of the valuable insights they may have about people and processes. Long-term employees may already be working alongside family members, giving them insight that you, as the boss, might not have. Asking their opinion is a sign of respect. Finally, your successor is going to need the acceptance and cooperation of non-family employees who may be the ones offering training. This crucial support is gained more easily if the non-family employee is part of the process.
If you’re concerned about losing rising stars, the truth is, it may happen. Those with ambitions to become CEO might look elsewhere when it becomes clear they are not in contention. The risk is necessary, however, and not everyone wants to be the boss. According to the Conway Center for Family Business, working for a family-owned business can have its perks. From the way they measure success (not just profits and growth), to the strategies they embrace (putting employees first, being socially responsible), family businesses can be a great place to work.
Making a plan is the first—and most difficult—step
Announcing your successor, getting them the education and training they’ll need and having an annual review of progress all remain on your to-do list.
Remember, succession planning is a good problem—a best-case scenario. It means your business has a future—one so bright it’s going to outlive your desire, or ability, to run it. You’ve always had a plan for the worst case. You should have one for the best case, too.
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