As the leader of your business, you should think about its future. You should think about 10, 50 years from now, and most importantly, the fate of your business in your absence. Your absence may be as a result of sudden sickness, death or retirement.
Many businesses do not survive after the death of their founders. More than 50% of all businesses do not last up to the second generation. You want your business to survive the next generations so that your legacy can live forever. Your business is your legacy and you need to protect it. For your legacy to live forever, you need to prepare someone to carry on your legacy.
This course is for upcoming and current entrepreneurs who want see their business pass to the second and third generations.
Importance of having a succession plan
- It prepares your business for unexpected events eg death of the CEO, founder of a co-founder. It provides guidance on who to take over in case of such events.
- A succession plan prepares the next leader for his role at the top. It also prepares the employees for the change of leadership.
- In case of retirement, a succession plan prepares the outgoing leader for life after retirement.
- A retirement prevents disputes as to who should take over in case of unexpected events like unexpected death of the CEO
In general, a succession plan ensures a smooth power transition and benefits both the outgoing and incoming leader.
Forms of business succession and exit strategies
- Passing your business to a family member eg son
- Selling your ownership to a co-founder
- Selling your business to a ley employee eg a senior executive or long term business associate.
- Selling your business to an outside party.
- In the case of many co-founders/co-owners, you might sell your shares to the company to be distributed to your co-founders.
FAMILY BUSINESS SUCCESSION
These are people working inside the company and act as members of the executive team.They may be CEOs or other senior executives eg heads of departments.Their role is to ensure the board takes care of the company`s interests.They represent the rest of the employees at the board.They approve decisions made by the board and implement the board`s strategy inside the company.
What is a family business?
A family business is a business owned and run by members of a single family. The decision making rests at the hands of the family. In a family business, family members take senior executive roles and board seats. The father might be the CEO, and the children may be heads of departments, board members and shareholders.
A family business is a more complex entity compared to other businesses. In a family business, there are business issues on one side and family issues on the other side. There has to be a fine line between business and family issues. Failure to draw that line, business may ruin family relationships. Family issues may ruin business as well.
Reasons for starting a family business
Just like any other business, a family business is formed due to a need to fill certain market gaps. However, one may start a family business for specific reasons including:
- To bring the family together by working together.
- To be a source of family income.
- To build a family legacy.
Family business ownership and leadership structure
When doing a family business succession planning, two issues need to be considered:
Some family members have shares in the business but don`t take part in the day to day running of the business. Some sit on the board while others take senior executive roles. The family business should meet the needs of all these members. For those not involved in the company`s day to day activities, their interests should be taken care of. Their voice should be represented. There should be a clear decision making process, where every shareholder`s view is heard.
As the family business CEO and founder, do you hand over both the leadership and control of your business? You might give up the CEO roles but retain your shares in the company. You may also sit on the board as a non-executive director. You need to consider how your shares will be distributed once you are completely out of the scene.
These are some of the issues you need to consider to ensure a smooth succession. Succession planning process should start right from the beginning. It`s not too early to start.
Challenges of in business succession
- Leader gone too soon: an unexpected event eg sudden death of the CEO might happen leaving the business without a prepared heir. As a business owner, you should start succession planning as early as during the start-up stage in order to prepare your company for unpredicted events.
- Lack of a capable heir: the founder might have his son in mind as the next possible heir. However, the heir might not have the leadership skills, or may not be interested in the family business. In such a case, the founder should explore other alternatives like having an outside CEO or preparing a senior executive to take over.
- Can`t let go: retirement is not easy. Some leaders may not be willing to let go the CEO position and the privileges that come with it: huge salary, corporate perks, power and respect. To overcome this, the outgoing leader should find something meaningful to do during retirement eg charity, politics, angel investment etc.
4. Conflict between two possible successors: two siblings may be conflicting to take over the top job at the father`s company. The CEO should identify the son with best leadership skills and business acumen to take over. However, the other sibling should not be left out. His/her interest and place at the company should be taken care of. For instance, he/she might be a shareholder, top executive or senior board member
How to ensure a smooth succession
- Have a clear succession plan: This will help you know what actions to take at different stages eg when to identify a possible successor, when to bring more people on board, etc.
- Identify your successor: This may be your child, key employee or business associate. Whoever your preferred successor is, you need to identify him/her early and start grooming them.
- Understand your vision: Your vision is what motivated you to start your business. You also have the vision for the company`s future. Share this vision to your successor so that he may be able to carry on your legacy once you are gone.
- Review your organizational structure: You should review the organizational structure and make necessary changes prior to the succession. These changes might include bringing more employees on board, promoting some employees to senior executive roles and changing the structure and composition of your board. This will prepare your company for the change in leadership and ensure things run well in your absence.
5. Understand your business worth: Do a valuation to understand how much your company is worth. In case you want to sell your company, this amount is what the buyer will pay you.
PREPARING YOUR BUSINESS TO RUN IN YOUR ABSENCE
You should prepare your business and your employees psychologically for your permanent absence. You should prepare them to report to new authority. The new leader might bring his own leadership style different from yours. Your business and your employees should be ready for this.
You prepare your business for succession through proper delegation, and mentoring employees. This will ensure effective leadership at all levels including the various departments. Your heir should also be involved in the business to understand its operations and to familiarize him with employees. For instance he might be a top executive or the COO. Thill will prepare him for the top job once you are gone.
Once you make proper adjustments and you are satisfied with your succession plan, take a temporary leave from your company. Take some time outside your business and watch how your business operates without you. If you come back and find chaos, you need to review your succession plan and fix major loopholes. In you come back and find things running smoothly and no one missed you, your business is ready for your permanent absence.
IT`S TIME TO HAND OVER
You have built your business from being a start-up to the empire it is today. You have taken all the risks and sacrifices along the way. You have identified and groomed your successor. Now it is time to move to the next chapter of your life. It is time to enjoy what you built with hard work. It`s time to hand over the job to another person so that you can enjoy your retirement benefits, to do the things you love, hobbies, etc. You worked for it and your deserve it!!