By: Rayanna Anderson
Over the next five years, it is estimated that 60 percent of owners of all small and medium-sized businesses will transition out of their business, according to a Gallop Press study. And for a family-owned business, preparing for succession is essential to enable the business to succeed into the next generation and beyond. Unfortunately, the statistics regarding this scenario are not pretty.
Only about 30 percent of these closely held businesses survive into the second generation and just 10 percent survive into the third. The quote, “The first generation creates it, the second generation enjoys it and the third generation destroys it!” appears to be supported by those statistics.
Now, are you ready to think about a strong succession plan that can maintain a healthy company for future generations and a smooth retirement or exit? The development of a successful succession plan can be broken down into four major steps:
1. Consider your options. The first step in succession planning should always be deciding who has the ability to be your successor. Begin by preparing a list of the people you know, inside or outside your organization, who have the ability to carry out your company’s business strategy. If that list has you coming up a bit short, consider the option of selling your company or discussing a merger with another company or competitor. If your first choice is to see the company stay intact for the next generation, consider someone with similar values and objectives to yours.
2. Communicate your decision. If it is a family business and there are multiple potential heirs, communicating how the succession will take place is crucial. The support of critical players in the business will be paramount to a smooth transition. Don’t neglect the employees who have made your business a success. Consider how you might make the transition more palatable. Rewarding the employees who have supported you over the years will encourage them to stay beyond your tenure.
3. Develop a plan and timeline for the succession. Your plan should include professional guidance. Support from your attorney and accountant are necessary. However, you might consider incorporating direction from business consultants with experience with the process and even friends or acquaintances who are willing to share their succession history.
The technical aspects of the plans typically include: how the business ownership will transfer; how the tax implications will be organized; and, if the transfer is to a family member, how the financing of the successor will be handled. Also, include a plan for how future profits will be disbursed.
Amazingly, many times the thing missing from a succession plan is the future vision for the business, including clear and concise detail about roles and responsibilities. This key component should include a strategic plan that includes sales and marketing resources for at least the next 12 to 18 months in order for the successor to acclimate into their new role.
4. Relax and enjoy your new life. Knowing you have done the planning, prepared for any contingencies or hiccups, and made the best decision for the continuation of your business, should help put your mind at ease.
Rayanna Anderson, MBA, is director of the Small Business Technology Development Center and the Management Development Institute at Missouri State University’s E-Factory. Anderson writes about issues she sees regularly in her consulting with small businesses in Springfield and the state of Missouri. Email: firstname.lastname@example.org.
This article appeared in the December 26th, 2015 edition of the Springfield News-Leader and can be accessed online here.