Your Guide to Succession Planning
Turning over control of your business to someone else — whether they're inside or outside of your family — can be challenging. During the succession process, business owners are usually looking to protect their company and their legacy, and look out for the people who've helped them secure success over the years.
Concerns over infighting, legal difficulties and other obstacles make the idea of succession intimidating for many. However, the process doesn't need to involve boardroom battles, legal entanglements or hurt feelings, if you do the right amount of planning.
The guide below can help you discover the basics of a successful succession.
What Is Succession?
Succession occurs when a leadership role or ownership of a company is passed from one party to another. Sometimes, this transition of power can be tricky for both the leader stepping down and the candidate taking over the reins, especially when it comes to family businesses.
Making a Succession Plan
Developing a business succession plan early helps ensure a business will be ready to transfer ownership when the time is right. The person next in line on the organizational chart may not be the right choice to thrive in an ownership position, especially if they lack leadership skills or passion for the company's success. So making the right choice for the business as an owner — and sometimes a parent — can be difficult.
Possible successor selections include:
- Family members who have already participated in the business.
- Family members who do not participate in the business.
- Other co-owners or employees of the company.
- An outside third party.
What Are the Types of Succession Plans?
Generally speaking, there are two types of succession plans: long-term and emergency. Long-term plans are created in advance, while emergency plans deal with unexpected situations or fill in gaps with long-term plans.
- Long-term succession plans: Succession planning doesn't happen overnight. If there is someone whom you have chosen to step into your shoes, you should start preparing them years in advance of the transition. Ideally, you should constantly adjust and reevaluate your succession plan each year, incorporating the changes in your company and its people.
- Emergency succession plans: Because life is always throwing us curveballs, having an emergency succession plan is crucial. For example, if a leader needs to be replaced unexpectedly due to sudden illness, and the chosen successor is not yet ready to lead, emergency plans make sure the company is not left scrambling. These plans can also help sitting leaders who have changed their minds about specific details of their long-term plans.
If you're worried about a smooth business transition, it's essential to have a concrete succession plan in place. Here are four tips for potential successors from a third-generation CEO:
Four Tips for a Successful Succession
1. Explore Family Dynamics
A mix of power, money and unstable family dynamics can lead to explosive conflicts if they are left unchecked. That's why next-generation leaders need to define expectations and nail down their job descriptions before stepping into their roles.
2. Be Willing to Learn
New family business leaders should exercise humility and prepare to learn constantly, no matter how many years they have been in or around the company. Relying on your instincts is essential, but respecting others who may have been around longer will help you grow the business and retain employees.
3. Hire Consultants
It's crucial to carefully select consultants and advisors that best suit your needs. Outside advisors can help design training programs, generate standard operating procedures and contingency plans, build teams, write budgets and advise on long-term goals. Wealth Planners can assist you in determining the succession approach that can help you most.
4. Prepare the Next Generation
As you step into your new role, don't forget that that same role will need to be backfilled one day, and the succession cycle will continue. It's never too soon to start preparing the next generation to take over the family business, and it's up to the current leadership to create a culture for them that reflects the family's values and business purpose.
Get Help From a Succession Planner Today
While the tips above should help everyone facing a succession, every person's unique situation requires special attention. One of the best ways to make sure your succession plan is handled correctly is by seeking help from someone who has assisted others in your position. At City National Bank, our wealth planners are ready to help you protect your wealth and secure the future for you and your company.
This article is for general information and education only. It is provided as a courtesy to the clients and friends of City National Bank (City National). City National does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors or persons quoted as of the date of the article with no obligation to update or notify of inaccuracy or change. This article may not be reproduced, distributed or further published by any person without the written consent of City National. Please cite source when quoting.
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