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By , Axial | May 26, 2015
As the owner-operator of a private company, it’s likely you have your children involved to some degree in your venture. Whether you are a founder or 1st generation owner, keeping the business in the family is one compelling strategy as you decide how to exit your business.
While many say the odds are against you — 70% of today’s private family-held companies do not survive beyond the 2nd generation — we believe there are several things you can do to aptly prepare your children or grandchildren to take the helm. In addition to passing down the physical business, there are some essential things the next generation will need to succeed and, hopefully, keep the business in the family for years to come. To that end, here are the four things to pass down with your business:
Experience
Your acumen has grown in tandem with the company’s top-line, and decisions you make in your business today draw on decades-worth of past experience. Of course, the child or relative you’re passing your business onto lacks this depth of company insight – he’ll effectively be a rookie CEO taking on the role you’ve spent years perfecting.
Professional experiences cannot be transferred or replicated, but they can be compensated for. A recent Harvard Business Review article discusses how non-family mentors often function as effective, objective references for younger family executives, and their influence is only magnified when they offer expertise in an area your family member might lack professional experience in. For instance, if this next-gen owner came to learn your business’s operations most thoroughly, consider providing a mentor who specializes in finance or human resources.
Additionally, as you prepare the soon-to-be owner to succeed you, resist urges you might have to shelter him from adversity. Challenges will arise during his tenure – if they go mishandled, they will likely be what result in your company’s demise. Where possible, involve the next generation in tough decisions, both internal and external, as you are still running the business. As you handle billing or personnel issues, for instance, you’re building templates for resolution that he can follow throughout his career.
Resources
Along with your professional experience, there are likely numerous resources you use every day that make you a better CEO. Some, like CRM software or payroll services, are obvious, while others, like Gmail extensions or multicolored sticky notes, might be less so. Before transitioning your heir into the CEO seat, try to assemble an audit of the tools you lean on daily. This helps to ensure his day-to-day duties are less demanding as he spends time grasping less routine responsibilities.
After considering daily tools, think more broadly to resources that help shape your longer-term goals and direction. Be sure to transfer subscriptions to newsletters and magazines you browse; a list of annual conferences, those you attend as well as those you haven’t been back to in some time; even persons and companies you follow via Twitter or LinkedIn. Sure – you’d like your successor to run the business with a mind of his own, but offering a place to start can be helpful.
Finally, attempt to put yourself in the shoes of your successor and consider resources that you never made space for but that might prove useful to a first-time CEO. Online classes targeted at executives, oftentimes offered through MBA programs, add insight where expertise is lacking. There are also executive coaches, as well as organizations like Vistage and GLG, that specialize in supporting CEOs through difficult decisions and processes.
Relationships
Of course, few resources will prove as valuable as the relationships you are able to provide. You did not build this business on your own, and for the next generation to continue its success, help will be needed as well. Like your resources, consider relationships you can extend that will provide for both short and long-term success.
Maintaining operations will be the new owner’s short term goal upon succeeding you, so ensure that all client, supplier, and vendor relationships transition smoothly. This should go without saying, but your successor also needs strong relationships with the employees he’ll interact with every day. As the incumbent, you should look to intervene where needed to smooth out any bumps of animosity.
The relationships that fill longer-term needs are built on levels of trust that are not easily transferrable, even between family members. Thus, giving the next-gen owner time to get to know advisors like accountants, lawyers, investment bankers, and lenders on his own will ultimately breed stronger ties down the line. Organizations like Vistage and tools like Axial are well positioned to supplement the folks you know with other qualified members of your industry.
Bonus: Space
No matter how seamless a transition, your successor will undoubtedly find himself in your shadow as he begins his tenure as CEO. You’ve given him everything he needs to succeed – not just equity, but also ample experience, resources, and relationships. What he needs most now is room to operate independently. Besides, it’s likely that he’s not the only one experiencing a transition – chances are, retirement is going to take some getting used to.
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For additional information regarding Florida business sales, acquisitions and valuations, please contact Eric J. Gall at Eric@EdisonAvenue.com or 239.738.6227. Also, visit our Edison Avenue website at www.EdisonAvenue.com or my personal website at www.BuySellFLbiz.com.
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