One of the most important factors for multi-generational business success is having a plan for transferring powers. This topic is widely popular among financial planning, however, it is oftentimes poorly executed. Law firm Kaufman & Forman, PC states 43% of family businesses do not have a succession plan mapped out.
No matter how near or far retirement may be, it is vital to prepare long before the transition of ownership of your business needs to occur. Taking this step may come with hesitation and fear of change. According to Accounting Today, 46% of family businesses feel reluctant to pass their company to the next leader. Those who prepare for the future increase the likelihood of their business living through succession planning and avoid common family business challenges.
Plan ahead and practice these four tips to continue your legacy:
- Identify personal goals. Before you begin the transition, ask yourself if you are financially ready to exit your role? Do you have enough funds to support yourself in the years to come? As a business owner, a lot of time is spent in the office and leading your company. When thinking about your transition, you will be stepping back from the power and focusing on your passions outside of your role. Whether it is volunteering, fitness or hobbies; keep in mind the amount of cash it takes to support your activities.
- Know who you want to take over your business. In most cases, business owners usually look to their children and family members to take over the company. However, business owners must decide whether their child, family member or non-family member employee would be the best fit for the role. Ask potential successors if they would be interested in taking over the business. Keep in mind, the chances of your business surviving into the next decades depends on who your successor is. Therefore, it is important to remain professional during the decision process. Once you find who the key person is, spend time together and train your successor in what he or she needs to learn before the baton is handed off.
- Keep clear communication. Each key player in your business must know what the future holds for the company and that includes who the next leader will be. According to Chron, communication is important in succession planning because it can help prevent conflict, create space for positive relationships to flourish and build creativity within the company. Therefore, business owners must remain transparent when passing powers to keep conflicts at bay and succession planning on track.
- Consult with a family business banker from National Bank of Arizona. Did you know we offer services ranging from managing growth and transitioning powers? Let us help you keep your legacy living on for future years to come. Learn more about National Bank of Arizona and our family business banking services.