Preparing a successor to build on your legacy
Finding your replacement should be a top priority when planning to pass down the business you worked hard to build. Here are a few considerations for business owners that can help ensure a smooth and successful transition.
In a perfect world, a family business would be passed down from generation to generation—or from family to an outside buyer—in a swell of profitability and goodwill. That would be because the owner easily identified the right successor, making it easy to hand over the reins.
But in the real world, only 34% of business owners said they had a robust, documented, and communicated succession plan in place†. And research shows that 39% of NextGens (post-Millennials) say there is a resistance in their company to embracing leadership change‡. Fumbled transitions can lead to long-term family rifts, resentment on the part of key employees, and, in the worst cases, damage to the value of the business and the wealth it could create.
Considering the stakes, you should put the same level of care into succession planning as you put into building your business. You need a plan, and it needs to be your plan, because as the owner you know your people, your business, and who could be your successor. Owners who succeed with transition planning usually do the following:
Plan early and methodically
Most business owners are swamped with daily operational tasks, especially in the company’s first few years. But those who succeed in the transition look down the road early to when and whom they might tap as a successor. Ideally, a candidate’s had experience with the company, and preferably from the ground up. Learning and appreciating the history of a company can enhance the future leader’s commitment to its workforce and success.
I help set specific milestones for owners when handing over responsibilities, such as ensuring the successor has a full understanding of billing, customer base, or production. Otherwise, succession remains too abstract. I suggest creating a relatively detailed plan and keeping records and notes to help you formalize your process.
Have an open mind
Business owners–like most people–can be biased toward the familiar and thus choose successors based on affection¶. A likely better measure is demonstrated performance over time. A successful transition strategy may require a change to your designated successor along the way if things trend badly.
Consider assigning specific roles to individuals based on their proven abilities. I work with one business owner whose company is now on its third generation. Three siblings have executive roles–one is CEO, one is CFO, and the third is COO. They respect each other’s specific talents, and the business has grown to a level that their father and grandfather would never have imagined.
Test a potential successor’s skill
You can’t test a person’s leadership skills without ever giving them the opportunity to lead–and as importantly to make mistakes. How they respond to the mistake will tell you a great deal. Do they acknowledge that a mistake has been made? Do they take responsibility or cast blame elsewhere? Do they make quick and substantive corrections to avoid further issues?
Because employee relations are crucial, a potential successor should be given the chance to have direct supervision. For example, you might have a potential successor take some responsibility in a particular department to see how they work with customers, suppliers, and key employees.
For a new leader to succeed, that person must prove they can earn the respect of key people within the organization. Respect doesn’t follow from a title, and not everyone can earn the respect of a team.
"Owners should put the same level of care into succession planning as they put into building their business."
Wealth Strategist, Huntington Private Bank®
A clear line of communication is central to any successful business, and before a transition it should include the owner, potential successor, and other key stakeholders.
Early on, an owner can share their interest in passing the baton to a successor without naming that person. This can set the stage for potential successors to express an interest in ultimately leading and they will likely perform and learn knowing they may eventually take the reins.
An identified potential successor must be open and honest with the owner to help ensure that they have a meeting of the minds on leadership, business practices, and other key aspects the business. There needs to be regular feedback to the successor.
Know your financial needs
Sometimes owners will sell the business and not provide for their own financial requirements. A 65-year-old woman or man can expect to live an additional 19.8 and 17 more years, respectively≠. If an employee has proven worthy of succeeding, consider an employee stock ownership plan, or versions thereof that may benefit the seller, including tax and continued management options. A methodical approach, with plenty of advance planning, can help family businesses establish a strong succession plan that allows the business to grow far into the future.
Each business is different and requires a specific approach to transition, but every business will benefit from thoughtful preparation. Working with your Huntington Private Bank team—a team that has deep experience developing business succession plans—can help make sure you’ve covered all the bases. To learn more, please contact your Huntington Private Bank team to see how we can help, or find a Huntington Private Bank office near you.
† PwC. May 16, 2023. "PwC’s 2023 US Family Business Survey.” Accessed July 10, 2023.
‡ PwC. 2023. “Today and beyond: The next generation challenges the status quo of family business PwC’s Global NextGen Survey 2022.” Accessed August 18, 2023.
¶ Favaro, Ken, Per-Ola Karlsson, and Gary L. Neilson. May 4, 2015. “The $112 Billion CEO Succession Problem.”
≠ Statista. Oct. 25, 2022. “Life expectancy for men at the age of 65 years in the U.S. from 1960 to 2020.” Accessed July 10, 2023.
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