One of the pivotal moments in a family business is passing the torch to the next generation. For most, wanting to retire and having a new team of leaders take over is both exciting and frightening. But it’s necessary to pass the reins if you want your legacy to continue. The ability to successfully plan for your departure is an important part of making a smooth transition. This level of fear and excitement is very similar to your first child going to college and your last one moving out of the house, making you an empty-nester. Owners think, “What am I going to do every day if I don’t come into work? Will the next leaders be able to ‘handle’ what I did? What if the business fails in their hands?” Succession planning won’t necessarily dispel those fears, but it will create a road map for your team to navigate the transition and future goals of the company. Before we dive into how to create that road map, we have to address some of your fears.
“What am I going to do every day if I don’t come into work?”
This question goes hand in hand with retirement in general. Owners often think their lives have been defined by a couple of simple factors: family and work. As we get older and our families make their own, or pass away, it’s tough to move past the routine of being able to speak with them daily. With work, it’s the same, and the ultimate routine. You spend just as much time at work as you do with your family, so breaking the habit of going into work daily seems like a mountainous trek. With any habit, it takes discipline and starts with a decision to do something else. Put a plan together that allows you to know what you will do with your time when you don’t go into work. It may sound easy to say “get a hobby,” but it can be more practical than that. Start with “projects” you never were able to do because you were so busy, i.e. in and around the house, in your community, with your family, estate planning, etc. Then take a look at those bucket list items like traveling, joining a club, trying new foods, learning a language, or reading a book (that isn’t about business.) There are plenty of ways to fill the time when you decide that it’s important. You can even use your business acumen to lay out a life business plan that operates off of goals, accountability, and measures success with rewards.
“Will the next leaders be able to ‘handle’ what I did?”
This often comes with many layers in its question, as well as the response. The first layer is our extrinsic layer - what is perceived on the outside: things like ego, unique abilities or skills, or achievements through the years. Then it goes deeper to the intrinsic layer - what’s really going on in your heart and head. On the extrinsic layer, our pride in what we have accomplished can strike a cord with our ego that says, “only I can do that.” In a way, having this level of self-confidence got us to where we are today, and others have not only recognized our unique skill set but have praised us on it many times, making us believe that we are the only one capable. With the intrinsic layer, our fears make us question whether or not we’ve done enough, prepared the next generation to be able to handle it, or if others may see our previous work as “worthy.” The key in overcoming these mindset roadblocks is focusing on the leaders themselves. Think about why you have identified them as the ones to continue your legacy (you did it for a reason, and if we’ve established you are great at what you do, have confidence in yourself that you made the right decision). It’s also not a question whether or not the ones taking over will be able to handle your specific responsibilities. They may end up hiring someone to fill your shoes, or split up your role amongst others within the organization. It is up to them on how they accomplish the tasks in the future, so focus on what is in your control - training anyone that will need to know the specifics of what you did.
What if the business fails in their hands?
When you’ve spent much of your career building a business, this nagging question can eat away at you and paralyze your actions to do the proper succession planning. There may be many factors causing you to ask this question, such as the age of the next generation leaders and their experience level running or managing a business, if the contingency of retiring is dependent on a buyout structure, if the next leaders are family and you will continue to interact with them on a personal level, or not wanting your next leaders to go through the same rollercoaster you had to. This falls into the intrinsic fear category, and can only be squashed if you keep focused on what you can control. To be blunt, it does not matter if the business fails in their hands as that weight falls on their shoulders. You have to remember that just like you took a risk to start a business or take it over from your parents, they are taking that same exact risk. Whether or not they understand the full magnitude of what that means, they will quickly realize it when you give them a chance to make mistakes and learn from them. If you continue to protect them from taking the risk, then the business could fail in their hands. Instead, teach them the numbers. Teach them why. Teach them the importance of what you are doing and the history of where you came from vs. where you are going. Succession planning is like a relay race; it takes more than one person to pass the baton and win the race.
Now that you’ve made the commitment to trust your decision to pass the company along, how do you make it a smooth transition?
First step is timing. If you plan on retiring in 5-10 years, it's critical to identify who will be groomed to take over or if you will be hiring an outside source to buy the company. If you are going to retire in 1-2 years and haven’t told anyone or figured out a plan, you are already very late to the party. Why do you need so much time? Consider when you bring in a new employee into your company, how long it takes to get them up to speed to feel comfortable. For most it’s 2-3 years when they are really rocking and rolling in their specific role. Now, let’s take it beyond their role: to run a company, they need to understand everyone’s role and how it affects the operation. So if one role takes 2 years to learn the intricacies, and your role encompasses sales, marketing, customer service, install, and overall business strategy to manage, that’s already 10 years of expertise needed for smooth sailing. This doesn’t mean they need to have worked every single position, and if you are identifying them as the next owner they should already be coming with some skills that cover a wide range of these positions, so it could be done in half the time, or 5 years.
Next you need to create a training timeline to start the transition in that 5-10 year period. The plan needs to start with a list of all the things you manage, resources you know, and “secrets” or “tricks of the trade” that should be passed down to the next owners. Be as detailed as possible when creating this list, and do not worry about when or who needs to be trained as much as including everything that is in your head. Once you have the list written down, then it’s much easier to prioritize and number the order of importance that determines the sequence of training. After that, it’s time to start the conversation.
Identify who will be the lucky one(s) to take over the business. At this point in the planning, you do not have to make any announcements to the whole team unless you plan on bringing in an outside source to take over. However, it is critical that you hold a meeting with your next generation leader to discuss whether or not they want to take on the risky reward of owning a company. Be clear on what that means from a financial and legal standpoint, as well as be honest about all of the times you had to use personal assets to keep the company running during the company’s history. These strategy meetings should not be taken lightly, or even to make a quick decision on either side whether it’s the right decision moving forward. Ask them for confidentiality, a commitment, and put a deadline on the decision before you go searching for an alternate solution to leadership. Once they fully buy into the honor you have bestowed on them and provide you with a resounding yes, continue to meet together on strategy and training over the course of the next 5 years on a weekly or bi-weekly basis.
There are also many legal and financial matters that need to be addressed throughout the process and there are a variety of lawyers or succession planning professionals ready to take on the task, no matter how big or little the company. It is important that even if you are passing the company to a family member and you are drafting a unique agreement that is more of a “handshake” offer, it’s still wise to consult one of these professionals. There are several ways you can accomplish your buyout or transition goals even if you don’t employ a lawyer to handle it for you. Succession planning is not unlike putting together a training plan to set your team up for success. It takes a tremendous amount of forethought, commitment from all parties, as well as clear and constant communication to make the transition smooth. So if you are planning retirement in the next 5-10 years, make that official decision and find your next rockstar to build upon your legacy.
Whether you are ready to retire and hand down to the next generation, or making your company appealing to be bought, you need systems to make the transition easier and less costly. Schedule a Discovery call with us today if you want to get started putting the processes together.