After spending years building up your business and seeing it succeed, it can be hard to walk away. This is especially true when family is at the heart of the operation, making it even more personal to you. However, all good things must come to an end, and there must be a day where you decide to pass the business on to the next generation. It may seem bittersweet to say goodbye but passing down the family business can also be an exciting opportunity to see your successor take up the mantle and take the business to the next level. So, once you’re ready to make that change, take some time to review our best practices for a smooth transition. This way you can enjoy retirement while knowing that your business is set for success in the future!

Choose Your Successor

When passing down your business, the first step is to figure out who it will pass to. With family businesses, it’s common to presume that the oldest child will be your natural successor. However, you shouldn’t let this assumption cloud your judgement. It’s better to be objective when choosing who will lead your business into the future, taking that person’s skill, experience, and commitment into account. You might even find that the best choice for a successor is actually someone outside the family! Plus, by making it clear that family members aren’t entitled to succession, you encourage them to develop strong leadership and business management skills so that they can earn their place as a successor.

Create a Succession Plan  

Once you have a successor picked out, you can turn to planning their succession. A succession plan is a great way to outline who will be taking ownership of the business, when and how this will happen, and what the other members of the business can expect throughout the transition. The succession plan can also lay out the vision that you and your successor have for the business’s future. After you have the plan created, take time to ensure that it has been clearly communicated to every member of the business, including family and non-family.  Additionally, you should think of the succession plan as a living document that can – and should – be regularly reviewed and, if necessary, updated to stay aligned with your vision for the business.

Start Your Successor’s Training

To make sure your successor is prepared for ownership, it’s good to invest in training them – and to do so early. Getting an early start means that you’ll have plenty of time to set your successor up with whatever training is necessary, such as giving them a mentor, developing their hands-on experience, or enrolling them in a business education program. Starting the successor’s training early also allows them more time to learn the history of the business, become part of its day-to-day operations, and get to know the people involved, including the older generation. The result will be a much smoother transition for a successor who feels well-prepared and for you, who can rest assured knowing that you’re leaving the company in good hands.

Establish a Governance Structure  

Creating a governance structure can help ensure that everyone stays on the same page while guiding your successor in their new leadership role. This structure could be a family council, a board of directors, or an advisory board with both people who are members of the family and people who aren’t. Having non-family members as part of your governance structure can serve as the “checks and balances.” As people who are acting outside of the family dynamics, they’re important for providing an objective point of view and allowing for effective decision making. In addition, the governance structure can help create a family constitution for the business. This document will outline the goals, values, and expectations for the company’s future but, more importantly, it can create the opportunity for your successor and the family to have deep discussions about what is important to each of them moving forward.

Plan for Obstacles

Change can be intimidating, and although you want the business transition to go smoothly, you should also be prepared in case any problems come up. Especially with family businesses, the stakes are higher and that means the conflicts can feel more personal. For instance, a family member could feel slighted if they weren’t chosen as the successor, a sibling rivalry could impact the professional environment at work, or the older generation could still try and influence business decisions even after they agreed to step aside. It’s good to maintain open and honest conversations about issues and to set clear boundaries between business and family to avoid personal and professional drama overlapping. Furthermore, you could also create a code of conduct for family members who are part of the business, with consequences outlined for those who repeatedly break the rules.

Transition Gradually

Again, you want to avoid making the transition of power seem overwhelming and shocking for those who will be impacted. By gradually introducing your successor to their new leadership role, it can give them time to feel comfortable taking charge while also allowing you to scale back your involvement little by little. More importantly, making this gradual transition means that your exit won’t be as jarring for those outside of the family, such as vendors you partner with, non-family employees, and customers.

Set Yourself Up for Success

With all the time spent thinking about who your successor is going to be and how to prepare them, don’t forget to think about your own future. As the current owner, you’ll want to consider a number of factors regarding your exit from the business. To start, you may want to set a date for when you’re going to step down. This way you’ll know when to start the transition process and how long you have to lead your successor through it. You might also want to consider your role in the company post-transition. Do you want to be completely hands-off, or do you want to continue as an advisor or consultant? Of course, as the person who has spent so many years helping the business grow, it can be hard to say goodbye. However, you can take pride in knowing that what you’ve created will continue to evolve with new ideas and new leadership that you trust.