Many entrepreneurs and family business owners dream of passing on their companies to the next generation. After working for years to build the business, keeping it in the family is important to many of them.
But what if the next generation isn’t ready to lead? Or what if they aren’t interested in running the business?
While you can’t force your heirs to take over, you may have more success in transitioning your business to them by following these five steps:
1. Start early. Make sure your kids spend time at the company and learn about the commitment it takes to support not only your family members but also the families of other employees. Give them business responsibilities when they’re young, from sorting the mail to mowing the lawn at the office. These early efforts will pay off with an appreciation of the efforts and rewards that come from business ownership.
2. Prepare them for leadership. If you were hiring a successor from outside the family, what would you look for in terms of education, training and skills? These are the same qualities your children should have if they are going to lead your company into the future.
For example, a college education, graduate training or specific certifications may be required for future leadership, so set these expectations for your children. Some owners insist that their children work outside the family business for a few years so that they gain perspective and experience before joining the family firm.
3. Create family employment policies. Does everyone in the family automatically get a job in the company? How much do family members get paid relative to non-family employees? What are the expectations for career paths, benefits and behavior?
Your employees will respect your children more if they pay their dues and earn their positions just like everyone else.
4. Remember that fair isn’t necessarily equal. Each of your children has different gifts and talents. While you may love them all equally, only one can be the next leader of the company, and everyone must make peace with this reality.
Remember, treating all of your children fairly doesn’t necessarily mean treating them equally. Those who work in and lead the business should have a different incentive and pay arrangement than those who may be shareholders but are not actively involved in day-to-day management. Talk to your financial advisor about setting up a fair way to compensate your heirs.
5. Figure out your plans for the future. If you’ve followed these steps, the next generation will be ready to lead your company boldly and brilliantly. But first, you have to get out of the way.
Spend time planning your next move, whether it’s retirement, another career or some other passion. It’s up to you to ensure a smooth transition — and the sooner you start, the more options you and your family will have to ensure your legacy.
It’s never too early to plan for business succession. Let us help you start the conversation, please contact us for further information.