There comes a time when the patriarch or matriarch of your family business is no longer the best fit to lead the organization. This could be due to their desire to retire and pass the torch to the next generation, or it could be because there is another member of the family that can better steer the company towards its future goals.
This can be a delicate topic, especially if your family member does not want to let go of their position. It’s best to enter into any conversation with empathy and understanding; it can be challenging to step down after a lifetime of work. The path to successfully transitioning the leadership of the family business from one family member to another starts with what’s called succession planning.
What is Succession Planning
You may or may not be familiar with the term “succession planning.” Succession planning is the process and strategy for a successful leadership role change. During the process of succession planning, you identify and develop new leaders as well as plan a transition.
The Importance of Succession Planning
There are roughly 5.5 million family businesses in the United States, contributing around 57% to the nation’s gross domestic profit. Though these businesses make up half of the nation’s economy, they have some of the lowest success rates for surviving leadership transitions.
Only one-third of family businesses survive the transition from first-generation leadership to the second, and only 12% survive the transition from the second generation to the third. Succession planning is your chance to create concrete ways to demonstrate your abilities to take over the business after the leading family member retires. It also, when executed well, can help ease any fears the current leader may have about stepping down.
Creating a Succession Plan
The process of succession planning will be highly specific to your business, but there are certain general steps your formal plan should address.
Outline Roles & Successors
Your succession plan should identify the critical positions and potential successors, i.e., you. Since you’ll be shifting roles within the same business, it’s also important to consider who will be filling the one you’re moving from.
Create Milestones
These milestones should be tailored to your family business’s everyday operations that the current leader has been overseeing. Creating specific milestones of things you’ll need to be able to do demonstrates to the current leader that you can successfully lead the business since they are able to watch you do so.
Evaluate the Plan
Once your roles are outlined and milestones have been set in action, select specific check-in dates where you can sit down with the current leader and evaluate where you are.
Transition Leadership
While you need one set of milestones, a set of milestones should be created for the current leader as well. Creating concrete milestones for them prevents them from dragging the process on.
These milestones could be things like officially handing over different operational and decision-making responsibilities and cutting back their hours. One milestone you should definitely set is a final ending date.
Easing Their Fears
In addition to a robust succession plan, there are a few other things you can do to help ease any fears the current leader may have about handing over the keys to you.
Create a Legacy Career Role
Just because someone might not be the best fit to lead any longer doesn’t mean they’re not a valuable asset to the company. Creating a legacy career role is a great way to keep a retired leader involved if they want to be. For a leader that is hesitant to let go of the company, this allows them to remain part of it without hindering forward progress.
Work with an External Entity
Seeking assistance from an external entity like a business advisor when creating a succession plan can benefit all parties involved. This removes any subjectivity between the current leader and the new leader and can help prevent tensions. An external entity takes the emotional aspect out of the decision-making and can help bring comfort to the exiting leader that the company and its future are stable.
Get Started
Succession planning can be a difficult task to tackle, especially for a family business. Our business advisory experts are ready to help you get started. Contact Us.
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