Some entrepreneurs dream of one day selling their business for many millions to a trade buyer like Google so they can spend their latter years on sandy shores with a cocktail in hand. But others are more concerned about creating a company that will stand the test of time and perhaps handing it over to the next generation of their family. If you’re in the latter category then there are several things you need to do if you want to make sure your business will keep going long after you’re gone.
Plan well ahead
‘Succession is not an event that happens in one day, it’s a process,’ says Marta Berent-Braun, associate professor at the Centre for Entrepreneurship at Nyenrode Business Universiteit (in the Netherlands), and an expert on family business succession planning. Some entrepreneurs think it’s something you can do in as little as year, she says, but you’ll need longer than that to make sure everything is in order.
Make yourself redundant
Not in that way. But you need to make sure your business is capable of operating without you in it. If its current success is dependant on your network of contacts, you’d better start introducing them to your anointed successor. If it’s dependant on your technical or managerial skills then you need to hire people who will fill that hole when you’re gone. And if it’s dependant on your personal reputation then you need to work on your company’s own brand.
Build flexibility into the heart of the business
The world is changing at an unbelievable pace and whatever your business does today, chances are it will have to change substantially if it is to exist even 20 years from now. Just ask the hundreds of minicab firm owners whose business models have been totally upended by the emergence of Uber.
You can offset that to an extent by identifying any risks on the horizon and coming up with potential solutions. But that will only be a short-term solution. It’s impossible to know what the challenges to your business will look like 10 years from now, let alone 100 years. So it’s important that your business is capable of reacting to change – and that your successor is too. Which brings us on to…
Prepare the next generation
‘Not everybody is born an entrepreneur,’ says Berent-Braun. ‘Very often the children of the second generation are kept under the warm blanket of the family business and not exposed to entrepreneurial behaviour. It’s very important to give successors the space to act, to find new things, to introduce innovations in the company. If they don’t try they won’t dare do this when the father or mother is gone.’
She suggests a successor should also spend some time working in another business and ‘make their first mistakes there.’ As well as giving them some wider experience it also means they will have more credibility among your employees when they come back.
Practise good governance
Governance is a dry and dull term normally associated with big listed businesses but it’s important for private companies too. Perhaps now you own the whole your company yourself, or share it with your spouse, but if you’re planning to leave all of it to several children and grandchildren then things can get complicated.
‘As ownership becomes diluted and complex with children, cousins and their spouses, the ownership group is growing and that can be dangerous for the company,’ says Berent-Braun. Many a second generation family firm has come-a-cropper thanks to infighting between siblings. So you need to make it clear exactly who will own what and how much power that will allow them to exert.
And don’t feel the need to restrict the business’s future governance to those within the family. Hiring an independent non-executive director might help by bringing in some fresh ideas. ‘Outside facilitators can also help make the working relationship of family members more productive,’ says Phil Mitchell of tax and business advisory firm Harbour Key. It can be difficult for some family businesses to entice top executives to work for them, as some worry they will struggle to succeed without the right surname. You may have to offer a chunk of equity to get the best.
Get the boring details in order
There are many legal and financial minefields that can emerge as you legally hand over the keys to your business to the next generation – whether that’s before or after you kick the bucket. So it’s important to get professional help with your will and other legal documents, and to plan for inheritance tax. And remember this isn’t something you can wait until your 60s to worry about – if you go under the proverbial bus tomorrow without all of this sorted out then you could be leaving a whole lot of chaos in your wake.
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