Previous … 2. Know the Financial Risks – To Your Retirement, To Your Family Successor
3. Organize Your Plan for Transition
Despite the expectation that the business will be passed down, it can often be difficult if not impossible to get business owners to agree to an exact date that they will retire from the business let alone commit to a disciplined schedule and action plan for transition. Timing often becomes the re-occurring “in a few years” scenario, yet statistically a staggering 50%+ of business exits are triggered by unplanned events such as sudden health issues, disability or death, an accident, family or partner disputes, divorce, personal debt, etc. You are not doing yourself, or Chris, any favours in being evasive about setting an exact date, and in fact are likely substantially increasing the risk to your entire family (your retirement, their continued success/livelihood) by sustaining the uncertainty.
Get started early. It took you decades to accumulate the depth of business knowledge, intuition and ‘street smarts’ you have today. Even if you are among the minority of business owners who have created a disciplined succession & training plan – good on you – Chris’ train-up time is only a fraction of what yours was, and he/she may have picked up some of your bad habits along the way. Remember the rule not to teach your own kids to drive?
If not already in place, work towards surrounding Chris with a qualified, talented and engaged management team, quality systems, and healthy business relationships. If you have been working “in” your business rather than “on” your business, now would be the perfect time to nurture and empower the management team towards increased independence and autonomy in decision making. In doing so, you will be transferring some of your personal knowledge and good will to the management team, which will inherently increase the business’ value AND help surround Chris with a more qualified management team.
Finally, despite best intentions eventually Chris won’t be able to learn how to drive the business if you won’t get out of the driver’s seat. It takes time for proper transition – many of the nuances and intricacies of running the business have become so “second nature” to you that many will be overlooked in the transition unless Chris has had time to be groomed with the practical experience and authority so critical to continued success of the business. There can be a tendency for business owners to hold on to the steering wheel too long, and equally so, for successors to want to grab it too quickly. You have to find the right timing based on complexity and readiness of the business, personal abilities, circumstances and interests.
Possible initiatives to mitigate your risk…
- Establish a mutually agreed timeframe to pass on the reigns of your business. Respect it and treat it as a “closing date” like you would a sale of your business.
- “Closing date” does not necessarily represent your retirement or discontinued involvement in the business. This seems to be the biggest road block for many owners – “I’m not sure I’m ready to retire.” or “What will I do after?” Have the open discussion and decide with Chris what mutually works best about your continued involvement based on your own interests and the needs of the business. There’s usually a welcoming place for you and more than enough work to be done!
- Quantify and document what technical, business and practical training your successor will need to master (as if you were hiring from outside) to not only ‘run’ the business, but increase its value. Agree on a training, development and succession plan with milestones, and stick to it. You can’t start the grooming too early. Get outside assistance for additional perspective – just like teaching driving, you don’t want to pass on all your bad (or outdated) habits.
- Embrace and engage the management team as a vital part of transition, and use the opportunity to kick up their talent, abilities, experience and engagement to the next level. In doing so you will substantially increase chances of survival and business value, while reducing business risk.
- Take advantage of outside work experience/exposure in other businesses for Chris if time/circumstances allow.
- Release the reigns (transfer responsibilities) gradually, and as earned. Your successor can’t learn how to drive the bus with you sitting behind the steering wheel! Grant your successor sufficient latitude in making his/her decisions. Yes they will make mistakes, but so did you. Keep communication open and active.
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