Succession planning is important for all Arizona businesses and frequently overlooked in family-owned operations. There are numerous family-run companies that no longer exist due to poor or no succession plan.
The plan needs to be well-designed and discussed with everyone affected. Do not assume that a son or daughter will want to carry on the family business. Even if your children say they will take over, they may not have the true desire required to continue a successful operation.
The “heir to the throne” also may not have the business skills to succeed after a parent transitions management of the company to them.
Another question that needs to be settled in the case of multiple potential successors (for example, more than one child): What responsibilities will each person have upon succession? Important details should be worked out early before an unexpected death or disability occurs. You need to address involvement of the next generation. In some situations, the retiring family elder has adult grandchildren that may already be working in the business. Beyond the discussion of the roles of younger family members, you also need to outline the times for major transitions, barring unexpected illnesses or death.
A family meeting in a neutral setting away from interruptions can help focus discussion, perhaps with the assistance of a professional consultant to guide the agenda. Consideration should be given to business and personal goals, as well as the plans of the next generation. Who has the best aptitude for leadership? Who wants to stay with the business?
Planning and transferring your business is a critical challenge. Some studies show that among family businesses, only about 30% succeed to the second generation and 10% into the third generation. You want to make sure future leaders of the business have the proper training. There are several different options. One is having younger family members work in several different areas of the business. Another is having aspiring family business leaders get some experience in another, non-family business to learn alternative ways of doing things.
The importance of preparing for succession cannot be overemphasized. Neither can the importance of transitioning the business in an orderly fashion. Sometimes, as planned retirement nears, elder family members do not want to let go. This can cause resentment on both sides. Naturally, the elder family members want to see the business they built or took over, if already a second-generation business, continue to succeed as it did under their leadership. They can be concerned that the company will not flourish without their direction.
At the same time, the younger family members may think they can bring the business to even greater success if the older relatives would just step aside. This is where a scheduled, gradual transition of management and leadership responsibilities from one generation to the next can help.
As they turn over the reins of the business, elder family members can be compensated through preferred stock in the corporation. They can also look to stay involved in business, if not directly, through participation in industry groups and associations.
Such actions recognize the contributions of retiring members and help them recoup their equity. Meanwhile, the new manager and active relatives can plan for the future.
Once retiring family members are no longer immersed in running the business, they may be interested in pursuing non-business community activities, personal hobbies, and travel.