900 N. Kings Highway, Cherry Hill, New Jersey 08034
856.667.4100 ·
215.563.0276 ·
Fax: 856.667.3652
The Online Advisor - March 1999
A business owner's biggest job: picking and training a successor
If you own or manage a closely held or family business and are in your late forties or older, now is the time to start planning for a successor to take over upon your retirement.
The sooner you start, the more problems you can avoid. Estate taxes are complicated and can drain the funds of a family business if tax planning is left until the last minute. Other problems include scheming and fighting among family members, lack of potential successors, and employee morale.
Another reason for starting early is time. Proper grooming of your successor can take several years.
Here are four steps to simplify the transition process in your company:
Step 1: Let everyone know the business will continue.
Surprisingly, a majority of family businesses do not make it to the second generation. Simply letting your family and employees know that you intend to pass along the business can improve the likelihood of a successful hand-off. Don’t assume everybody already knows your intentions. Tell them.
Step 2: Seek competent advisors.
The succession process can be difficult if you try to do it alone. Your attorney and accountant can assist you in preparing any necessary documents and can help you develop a written plan that best suits your needs.
Step 3: Select and train your successor.
Choose a successor who will be able to operate the business without you.
Training your successor will take many years. During the formal training period, if not sooner, get your successor involved in working with your suppliers, customers, and outside advisors.
Outsiders can also be a good source of training - particularly if your successor is your son or daughter. Many business owners encourage their children to begin their business careers in other companies to gain broader experience.
Step 4: Allow your successor to become the leader.
Once trained, your successor must be allowed to lead the company. Set a date for making the transition and stick to it.
Many former owners stay with the company in a reduced capacity, assisting with such matters as client relations or long-term planning. After the transition, however, you must allow your successor to make the final decisions.