Transitioning out of ownership in a family-owned business is a highly personal experience for many founders. After decades of developing the business from scratch, transitioning out of leadership is much more than a practical business decision. It is a difficult emotional decision. In addition to relinquishing control of their business, the founding family members may also lose a significant part of their identity, daily routines and legacy.
Therefore, it is common for family tension to develop in the event that changing roles creates conflicting expectations.
As such, the timing of succession conversations should start years prior to the planned retirement date, allowing sufficient time for each person to adjust, express their concerns and enter the conversation with empathy rather than urgency.
Equipping the Successor to Lead the Organisation
Regardless of whether the next leader will be a family member or an external candidate, preparation is key. Success in one generation does not automatically translate to success in the next. The next leader must demonstrate the respect of the team, appreciate the organisational culture, and be able to adapt to changes in the marketplace.
A transitional period in which the responsibility of the organisation is gradually shifted to the next leader allows them to transition into the role while the exiting leader assumes a mentorship role. This facilitates the transfer of ownership and minimises the potential disruption of the organisation.
In order to avoid confusion regarding decision-making during the transition period, a clear decision-making framework should be established.
When the Next Leader is Not a Family Member
On occasion, none of the available family members has developed the necessary skills to assume the leadership position, or none are interested in taking on that role. In this instance, hiring an external successor may provide the best opportunity to sustain the business.
If the business is purchased by a non-family member, a business acquisition loan provides a clear path to a successful sale of the business. The loan allows the purchaser to acquire the entire business at once, providing the retiring owner with a full exit. This is especially beneficial where the continuity of services provided to clients and the retention of employees are critical.
Additionally, the loan establishes clear terms from the very first day, eliminating ambiguity. The loan formally documents the transition and provides evidence of stability to clients, employees, and partners.
Preserving the Legacy of the Business
Legacy extends far beyond the profit margins of the business. Values, relationships and reputation are equally important elements of a business legacy.
To preserve these aspects of the business, document everything that distinguishes the business. Client strategies, supplier agreements, and other operational information that resides in the mind of the founder must be documented, not simply assumed to be passed down through the generations.
A business playbook, scheduled handovers of the business, and ongoing communications between the founder and the successor provide a means of preserving legacy and empowering the next generation to create value based upon existing models.
Creating a Plan for Life After Business
Having a plan for life after business is a necessity for the retiring owner. Retirement is not the end of the journey; it is a new chapter in life. Whether travelling, mentoring, or engaging in philanthropic activities, the retired owner will have a renewed sense of purpose and therefore less difficulty transitioning from the business.
Ultimately, a succession properly conducted can be a celebratory moment. It is a means of honouring the past, investing in the future, and creating an enduring legacy for the business that exists independent of the founder. Proper planning, honest communication and professional support can make all the difference.
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