Credit: Keith Williamson/Flickr

How to hand your business over to the next generation

Passing on a company is more complicated than just handing over the keys.

by Jack Torrance
Last Updated: 28 Aug 2015

You’ve worked hard and built up a successful business, but when the time comes to step aside, what do you want to do? While some entrepreneurs aspire to sell up and reap the rewards of their hard work, others want to pass their company over to the next generation of family members, who they trust to look after it.

But handing over a business isn’t as straightforward as transferring ownership to your kids. You need to think about what role they will play, what the business needs to flourish in the future, and how you can prepare the new leaders for the challenges ahead.

Identify the needs of the business

You’ve successfully lead your business to where it is now, but are your kids the best people to look after it for the future? ‘All the skills of the owner who’s set this up from scratch, all the drive that they have, you can’t always assume they are in the children,’ says Alan Dale, head of business consulting at Grant Thornton.

‘And even if they are in the children or family you want to hand it over to, it may not be the skills for where the business is trying to get to.’

That’s not to say you need to sell up, of course, but it might make sense to bequeath ownership whilst bringing in an external hire to be chief executive. It’s also fairly common for family members to remain on the board in this case, giving them oversight while leaving the day-to-day operations in the hands of somebody more experienced.

Get outside guidance

‘Often the thinking can be too incestuous within the family at times,’ says Dale. ‘Having other people with different backgrounds and skills and experience will really put the extra drive behind the business. It’s rare to see, when you’re in the second generation, a successful business that is wholly run by the family.’ So it might be worth bringing in an independent non-executive chairman, or at least a solid roster of external advisers.

Prepare the next generation

If you decide they are up to the job you need to make sure that whomever you are handing over the business to lives and breathes the company as much as you do. ‘You’ve got to embed them in the business early in junior roles do they can really understand how the business works,’ says Dale.

Gary Dixon took over his father’s butchery supplies business, The Flava People, back in the early 2000’s, but not after more than 20 years of working for the company. ‘Somebody coming in to take over the reins of the business at that point who hadn’t been involved before then, it would have been too big a sea change I think,’ he says.

Keith Hewitt, who founded industrial fittings firm Northern Connectors in 1983, is in the process of handing it over to his son-in-law Scott. ‘He started off in the warehouse, then he went into assembly, and then on to the sales desk,’ Hewitt says. ‘We had a technical manager who’s taught him all about that side of the business. When he left, Scott took over that role and since then he’s blossomed.’

Minimise the risk of feuds

There are many benefits to keeping things in the family but emotions can run high and there's always a danger of a bust up. While some degree of discord is inevitable and will be water off a duck's back, you only have to look at examples like the Morgan Motor Company, where long-time CEO Charles Morgan was ousted by his brother-in-law, to see how problematic disharmony can become. 

There's only so much you can do to prevent what may come after you've passed on. But setting out clearly what your expectations are, persuading others that your chosen successor is the right person for the job and ensuring they are left with a large enough share of equity to see off a coup will help.

Don’t interfere

If you step down before handing over the ownership of the business (as opposed to doing it posthumously) it’s important to let the new management find their feet. ‘It’s no good people like me coming in and saying, "Well why have you done that? If I was here I would be doing it this way",’ says Hewitt. Advice is always appreciated but at some point you need to take the stabilisers off of the bike.

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