Building a business is like raising a child. It takes time, money, care, and dedication. Accomplished entrepreneurs admit their companies are more than work; they’re part of their identity, and owners become emotionally and intrinsically tied to their business’s success. So, when it comes time to hand over the reins, the succession strategy process requires forethought and effort.
Business succession strategy is not something that can be done quickly. Ideally, a business owner will have a five-or-more-year runway to get their successor up to speed before they step aside. But what if an unexpected event triggers a dramatic shift in business leadership? Who will take over? Will the successor be a family member? A long-time employee? An outside hire? This is the first consideration, as the learning curve and approach may be different for each choice.
Deciding on the right steward for a company you’ve spent years, and perhaps a lifetime, building requires deep consideration. Ask yourself:
Does this person share your vision and priorities for the business and its future?
Do they have the knowledge and experience necessary, and, if not, can they acquire it?
Do you trust them to make decisions to execute on your vision and safeguard your company?
Can they lead in a way that will encourage employee loyalty and uphold your business values?
To ensure your company continues to operate smoothly after the changeover, it’s important to put structure and timelines around your succession strategy. There may be a scenario where you have more than one potential successor, in which case you may wish to evaluate their performance and development over time. Or, if you already have a successor in mind, consider preparing them by:
Spending one-on-one time with them and explaining the nuances of your business including not only your vision of the future but also where it started and how you got it to where it is today
Working in tandem until you gradually transfer all your daily tasks
Giving them visible leadership opportunities to help employees get used to the eventuality of the transition
If your successor is a family member, you will most likely have longer to groom them for the top leadership role. Consider allowing them to shadow you to help them see how being part of the family business is not the same as properly running it.
A formal succession strategy requires the input of lawyers, accountants, financial professionals, and business consultants. It should address the financial implications of your exit, as well as the process, roles, and responsibilities of everyone involved. It needs to detail the ownership transfer, leadership transition, and any governance structure that will be put in place to handle conflicts.
In the case of a family business, it’s critical to manage family dynamics, disagreements, and potential power struggles through open and respectful conversations so no one is blindsided. Let’s not forget that the successor needs to be aware of your strategy and they need to agree to it.
There are many moving parts to get to a successful exit from a business you’ve built. As you begin thinking about the transition, don’t forget to consider your own future. How will you manage financially? Have you conducted a thorough financial audit that includes your estate plan, will, life, and health insurance needs as well as a wealth management strategy? Do you plan to continue to contribute to the company as an advisor or board member, or will you fully embrace retirement and focus on non-work interests? Will you start up a new business? No matter what you choose, take time to reflect on your own next step since it will be a major life change.
The hardest part of building a business is letting go, but it becomes easier when you have a clear strategy outlining exactly what will happen after your departure. Not only will a detailed succession strategy allow for operational continuity, but it will give you and your employees peace of mind knowing there’s a framework in place whenever it may be needed. The sooner you begin strategizing, the better, for you and them.
This article is provided for general informational purposes only. Neither New York Life Insurance Company, nor its agents, provides tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.
SMRU #6006293 exp. 10/24/2028