You could have a well-drafted and properly funded buy-sell agreement in place, but if you haven’t chosen the right person to take over the business, your succession plan may not work out as intended.
Most of the business owners we surveyed* say they have chosen their successor – in most cases it’s a family member. Of those, over 75% claim that this individual knows he or she has been chosen as the successor – although 23% don’t know. Furthermore, 70% also say they are confident in their successor’s ability to take over the business – however 30% are not.
Choosing the right successor is critical to the long-term success of your business. Here are a few tips for properly preparing an individual for taking over the business.
Encourage gaining experience outside the business
Successor candidates should ideally spend 3-5 years gaining work experience outside the business. This fosters new skills, fresh ideas and self-confidence. It also helps determine if taking over the business is truly the best course of action for the chosen successor and allows them to take over the business by choice rather than a sense of entitlement or fear of failure.
Implement a successor development plan
This is a written career path for the successor to follow. It begins with an assessment of the successor’s current skills and interests and defines what additional experience, education, and training must be achieved.
Coordinate the succession plan with family members and key managers
Have them participate as appropriate in structuring the succession plan and make sure they fully understand its impact on them. To achieve this, they must understand that there is a rigorous process of successor development and selection, not nepotism, that will determine the next leader of the business.
Recommend utilizing a mentor outside the family/business
Help the successor find and utilize a mentor outside the business to act as a coach, advisor, and educator. This might be a trusted person within the industry but not affiliated with the company, a professional career coach, or a professional development group composed of successors from other non-competitive companies.
* 2015 MassMutual Business Owner Perspectives Study conducted by HawkPartners for MassMutual.