Not everyone looks forward to retirement. Some business owners can’t imagine themselves sitting by a pond with a fishing pole or whatever else your idea of retirement may be. But you likely will hand over the keys one day, and you must have a plan in place long before it’s time to walk out the door.
Developing a succession plan encompasses a host of strategic and financial decisions, such as determining your company’s value, establishing a buy-sell agreement with a business partner or gifting to a family member. But the cornerstone of your plan will take the form of flesh and blood rather than that of a price tag or a contract. Here are nine tips for choosing the right person to replace you and preparing your successor for the road ahead:
Start early. Many consider five years before retirement an ideal time to draw up an outline of who might succeed you and how it all will take place. If you’ve already chosen a successor (for example, an employee or a family member) getting a jump start on your plan will allow ample training time.
Decide whether your successor will be family or nonfamily. Do you have a business partner who’s interested (and able) to take on the responsibilities of ownership alone? Do you have a son or daughter who’s poised to take the reins, or will you be selling the business to an outside party?
Consider the candidate’s qualifications. Look for a well-rounded business education and senior management experience. Your candidate (even if he or she is a family member) should be able to present a strong work track record.
In addition, make sure this person’s abilities match up with the complexity of your company’s operations. If, for instance, your son or daughter has great general business skills but isn’t the least interested in sales or marketing, this could be a deal breaker. If you’re looking internally, look at your strongest players in senior management.
In the event you don’t have a qualified family or internal candidate, you’ll need to look externally. An executive search firm can help you locate and screen qualified candidates. Your trade association also may be able to assist.
Consider the candidate’s personal traits. Beyond judging a candidate’s quantitative skills, assess his or her qualitative characteristics, such as having an open mind that can keep pace with industry changes and consumer demands. Other desirable qualities include being able to share and delegate responsibilities while accepting responsibility for decisions and actions. Also seek someone who will be a good listener for employees and other managers in your company. Internal candidates will, of course, need to possess these qualities as well.
Involve all parties. The succession process might start with your attorney and wealth advisor, but you’ll want to involve everyone who will be affected by your succession plan, including family members and employees. Workers may fear that the changeover will result in the loss of their jobs, so it will be your job to assure them otherwise.
Define your role in the transition. Your options are vast, from passing on daily management responsibilities while retaining overall control and ownership to handing over both control and ownership on an agreed upon date. These decisions are multifaceted and depend on many strategic, economic and personal factors.
Train well and broadly. You’ll want to develop your successor’s know-how in a full range of dealer responsibilities across departments, including:
- Accounting and finance;
- Sales and marketing;
- Operations and office administration;
- Human resources;
- Information technology; and
- Customer relations.
Ideally, your “owner-to-be” will have hands-on work experience in each functional area of your business. In the case of a family member, put extra effort into staying objective as you train him or her to run the show.
Make sure you have a viable business plan. The future success of your business depends on how realistically you see the marketplace and your company’s role in it. During the transition, your successor will benefit from a well thought out business plan that projects at least a few years into the future. Think of it as a guide rather than a blueprint.
Put your pride aside. Your successor will likely replace some of the ways you did business with methods and procedures he or she believes will work better or be more up to date. Don’t let an injured ego let you lose sight of your importance as a valued advisor.
If you would like to discuss your business’s succession planning needs further, please contact us at (949) 482-1850 or via the link here.