The Key to an Effective Succession Plan For Your Family-Owned Business
The economic uncertainty of the past few months has challenged family-owned businesses unlike any other time in recent history. Many owners were forced into crisis management and survival mode. As the restrictions ease and the economy opens back up, they have a unique opportunity to evaluate their business at all levels and to discuss how to adapt to a new environment. Many of these discussions will revolve around the operations of the company, but it is also an important time to review the succession plan.
It can be difficult to achieve a successful succession plan in a family business. It’s an evolution; it is constantly changing and being revised as the owners and the company mature. Documenting the owner’s vision regarding how they see the company operating once they are no longer there is the ultimate goal of any succession plan. The owner, key employees, and the owner’s family are all crucial participants in the creation of the plan. Communication among all participants is imperative and it’s probably the most important aspect of any successful succession plan.
The bad combination of unforeseen events and no plan
It can be difficult and time consuming to make the necessary decisions needed to finalize a succession plan. Prior to finalizing the plan, a company may be exposed to risk and potential loss of value in the event of an accident, especially for companies with a 100% owner.
Developing a succession plan is a recommended strategy for any business. It can serve as a roadmap for the strategic visions of the company to be carried out in the event an owner exits the business, whether planned or unforeseen.
In many family-owned businesses, the owner’s wish is for future generations or other family members to someday take over. The timing of this transition can be a hurdle, as children may not be ready to lead the business especially in the case of an unforeseen event. In these instances, it is likely that the business leaders in place would be forced to choose from one of the options below:
Sell to a strategic buyer.
Sell to key employees.
Wind down the business.
Family continues to own the company with the hiring or promotion of key management personnel to run the company, starting with promoting or finding a CEO/president.
No matter what choice the business selects, it can only be accomplished with a documented plan.
The starting steps for creating a business succession plan
Creating an updated organizational chart, as it currently exists today, is step one in the business succession planning process. The owner needs to determine whom they consider key components to the ultimate success of the succession plan. As part of this process, the owner needs to systematically chart the progression of each person on this chart as if they no longer existed at the company. This process identifies weaknesses that may currently exist within the organizational structure, helps the owner identify the key current employees, and determines if any specific individual is capable of taking on another important role in the company. All staffing weaknesses within the organization should be identified, documented and addressed before the plan can be finalized.
The most important thing to remember when creating a succession plan is you are not going to be here to carry it out. This statement is obvious but owners who have had a say in every aspect of the business need to fully understand that they will not be around coaching from the side lines. Therefore, the following documentation becomes critical to achieve the desired result.
Job descriptions: Create clearly defined job descriptions for each position described within the company’s organizational chart. Each description should include the position’s title, role within the organization and responsibilities. All filled and open positions should be listed as they will assist in the future hiring process. Defined job descriptions are important because they will help to avoid conflicts and to ensure everyone is on the same page regarding responsibilities.
Employee handbook: The employee handbook provides guidance to resolving conflict. The current employee handbook should be evaluated and confirmed it is up to date.
Corporate governance: It is important to establish how the corporation will retain order. This is especially important when you potentially no longer exist at the company. Without strong corporate governance, the steps above cannot be completed, and the value of the business will be greatly diminished. Business owners should consider hiring an outside board of advisors as they serve as a valuable resource to help guide the business transition to the next management structure.
Training programs: Training programs should be developed to ensure each employee is successful within the described positions on the organization chart. It will be important for each individual to grow within their current position, and to gain an understanding of the position above them so they are ready to take on the next role if called upon. Soft skill leadership training should be included in this program.
Successor: The business needs to determine if a successor currently exists at the company and if that person is ready for the position.
A strong corporate infrastructure will retain the value of the business, and by putting the steps outlined above into place, external business partners will be confident about the successful continuation of the organization.
The plan must be fluid to achieve its objective. What the business owner may want to see happen today may not be what is appropriate a year from now. Over time, the plan will need to evolve to adapt to the growth of the company and its employees.
The actions above will move business owners toward building an effective succession plan. Conversations about succession within a family business can be difficult, but they are important to the ultimate success of the business today and for future generations.