In my experience, many family business owners believe they will manage their business indefinitely and haven’t made the time to develop a succession plan.
But circumstances can arise that prevent you from continuing to manage the business, such as unexpected health issues or other life events that require more of your attention or resources. I’ve also unfortunately witnessed the unexpected death of a business owner, leaving the family not only devastated, but clueless as to what to do with the business that is their livelihood.
It is critical to have a succession plan in place, and to get started on developing it much earlier than you might think. It can be a challenging and emotional process, so it is important to make careful considerations from the start. Five steps to help you successfully transition your family business to the next generation are as follows:
- Start the conversation. This can be uncomfortable for everyone involved, but you have spent your entire career building your business, so it is critical to have a plan for its future. Begin talking with your family members to gauge their desires for the future of the business. You should never assume. Everyone will feel better and appreciate the candor once the conversation has been started. The key is to start that conversation now.
- Do your due diligence to select the right successor. We all have interesting family dynamics. If yours are too complicated, it may make sense to look outside the family to find your successor. You want to be sure that your successor is qualified to manage your business, and just as importantly, wants to take on the responsibility.
Oftentimes we see that successors who have worked for a different company or in a different industry for some time can actually bring the most well-rounded experience to the operation. Begin including potential successors in business meetings to help you assess their competencies and level of commitment.
- Seek professional help to begin establishing the plan. Establish your team of trusted advisers, which typically includes a certified public accountant, an attorney with experience in estate planning, and a banker or financial adviser with experience in succession planning. Ownership transitions have legal, tax and financial implications that require the knowledge and help of professionals in each of those areas. Engage with your trusted adviser team early on to ensure you are aware of all options and risks associated with your specific company and situation.
- Track your performance against the plan. Successful transitions require long-term planning and training of the successor – sometimes, depending on the business, it can require more than a decade. It’s important to establish a realistic timeline with measurable goals along the way.
Providing intensive coaching – as well as opportunities to make mistakes – are critical for your successor’s development. This is especially true of financial decisions. Creating a specific “training plan” for bank account management will help you keep your successor informed on the many financial decisions – big and small – that you make over a period of time.
- Keep up the communication. Early, frequent and candid communication is paramount. Some family members, employees, business partners and even customers may question your decision if they feel they’ve been “in the dark” or intentionally left out of the conversation. Maintaining clear and consistent communication throughout the transition allows everyone to feel more confident in the decision and the future of the company.
This long-term and deliberate planning helps you to gradually shift authority and decision making to your successor based on his or her progress, while remaining in your management role. The last thing you want is to transition too quickly, then regret or disagree with decisions made after you have moved on.
Chris George is senior vice president at PNC Bank and longtime Wilmington resident. He has served PNC and its predecessors for more than 20 years in various leadership roles. PNC Bank, N.A., a member of The PNC Financial Services Group, Inc., is one of the United States’ largest diversified financial services organizations, providing retail and business banking; residential mortgage banking; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management.
These articles are for general information purposes only and are not intended to provide legal, tax, accounting or financial advice. PNC urges its customers to do independent research and to consult with financial and legal professionals before making any financial decisions.