Does your business have a succession plan? At some point, every organization has a transition in leadership. But, when it’s a family-owned business being passed down from generation to generation, there are difficult decisions that should be made years before the current owner retires or exits the business. Often entrepreneurs start a company to create a legacy for their children, so getting everything to play out according to plan can be emotional and challenging. While there is no singular approach that conforms to every operation, there are fundamental guidelines that can lead business owners in the right direction.

Start Planning Your Exit 5 to 10 Years Out
Wealth planners believe leaders of family-owned companies should develop an exit strategy as soon as they start their businesses. Realistically, it’s hard to think about leaving a business when you’ve just opened the doors or recently taken over the operation. Yet creating an exit plan 5 to 10 years before passing the business to another family member allows ample time for complex paperwork and to assess any tax implications related to the transition.

Communicate to Find out Who’s Interested
Sometimes we make plans for our children’s future when they have other career choices in mind. You should ask your children if they want to run the business someday. Their answer can help avoid family turmoil later. To prepare for the future transition, create an environment of trust and establish two-way lines of communication to convey confidence in your decision. It’s essential for everyone to feel their opinions count when giving their input in developing the succession plan.

• Family members who are currently involved in the business.
• Relatives who have a vested interest in the success of the business but are not involved in daily operations (ex., Siblings with children who have inheritance rights)
• Long-term employees and new employees who have the potential to grow with the company
• Outsiders who impact the business but are independent of the operation

Prepare Successors with a relevant Education
Whoever is elected to take over the company should have the education to help them run and operate a business successfully. Obtaining a degree in business or finance enhances the person’s knowledge and enables them to share new ideas and insights to elevate the business. It’s assumed the would-be successor performs regular duties in the business alongside employees. This helps them learn the ropes. It’s also a good idea if the person works for one or two similar businesses after finishing school rather than immediately assuming a leadership position in the family’s company upon graduation. Considering how dedicated employees would view such a move is essential, and it also diminishes the new leader’s credibility. If multiple children are to operate the business, give each of them a designated area within the organization for which they will be responsible.

Get outside Help with the Transition.
Bring in an expert who is knowledgeable about assisting family businesses that are in transition. The person can view the situation without involving their emotions when giving advice or facilitating decisions. When it comes to family, it’s vital to be fair and equitable to prevent hard feelings that will linger long after the deal has been sealed. These experts include estate planners, tax experts, attorneys, and financial planners. They can help you see the big picture and ensure the estate and business plans are in sync.

• Take your time to be confident you’re making the right decision
• Plan for unexpected events that may happen after the transition
• It’s alright to change your mind about who the successor will be if it’s the best thing to do for the business
• Get third-party business valuations to be transparent about where the company stands

When it’s all said and done, multi-generational enterprises must ensure everyone is aligned and united around one purpose—to ensure a smooth transition that keeps the company viable for the next generation.