If you run a family-owned business and have a plan to pass it on to someone else when you're no longer able to run it, it’s important to spend time with your potential successor to make sure the transition goes as smoothly as possible. As you're developing a training plan for your successor, you’ll need to identify all the important functions of the business and have them spend some time working on each of them to gain the right amount of familiarity. The length of time needed for this should factor into your succession timetable.
"Immerse your successor in the business of your company so he or she sees both the depth and breadth of the operation," according to SCORE, a nonprofit association supported by the U.S. Small Business Administration. "This may sound simple enough, but there is a certain amount of 'letting go' that goes along with teaching your successor by allowing him or her to learn, grow and make mistakes before assuming the helm. By creating a culture that encourages the person to take charge within broad guidelines, you establish space for your successor's style to fit with your broader business goals."1
The younger generation is probably excited about the possibility of making changes when they take over the family business, but moving too swiftly can lead to danger. Explain this to the successor, and help them understand the value of keeping current arrangements in place until it’s time to gradually make changes.
For example, the successor may wish to switch the company's accounts to a different bank when they take over. Before that happens, they should be encouraged to get to know the banker who's currently handling the company's finances. Your banker has knowledge of the business’s history and how it runs, as well as its business cycles, cash flow challenges, etc. Your banker can be a third-party resource the new owners can count on for unbiased advice, which they’ll need as they start out on their new venture.2
It's also a good idea to discuss maintaining the rest of the professional team (CPA, attorney, etc.) as valuable resources and advisors if they have been serving the company well. Chances are they also have a lot of history with the company and have developed a close relationship with it.
Harvard Business Review published an interesting piece3 about businesses that made too many changes too quickly under new leadership, and the results were generally not favorable, though it also speaks to businesses that didn’t make changes quickly enough. It points out that often the issue is less about how fast business leaders are willing to move, and more about whether customers are ready for the changes being made.
This just drives home the point that no matter what changes the successor is making, how customers might be affected should never be too far out of mind. After all, without them, there is no business. There are plenty of potential changes behind the scenes that may seemingly have no bearing on how customers interact with the business, but if there are any potential ramifications, they should always be considered. If you see the potential for mistakes in this regard, make sure to have a conversation with your successor to ensure that they understand your view on the matter.
As you hand over your business – your life's work – to someone else, even if it is a beloved family member, it's likely that you'll be very protective of it, and that's completely understandable. You'll also need to accept that changes are inevitable, and that's okay, too. If you are open and honest about your feelings before and during the transition, the process faces a much greater chance of success, and the business itself will be all the better for it because its new leader will have a firmer grasp on how to handle things in ways that benefit the company and its customers.
2. Nevada State Bank often helps businesses organize a smooth transition. For more information, contact us at our Family Business Resources department: https://www.nsbank.com/business/family_business/index.jsp .
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of ZB, N.A.