Turning over the reins of the family business is perhaps the most difficult business transaction any family ever makes. The transition takes a huge toll on small businesses; most third generation handoffs fail, and even second generation transitions are tough to pull off successfully.
To ensure your businesses success through this transition, early planning is essential. The more time you have to work out the delegation of responsibilities and the maintenance of key customer and vendor relationships, the smoother your transition will be.
WHAT IF SOMETHING HAPPENS TO ME THAT TAKES ME OUT OF THE BUSINESS BEFORE I’M READY?
Marilyn Murdoch, owner of the family-run Katayama Framing in Portland, OR, started transitioning her business to son Peter Murdoch seven years ago. They report that the change is happening almost seamlessly, and offered these eight suggestions gleaned from their process:
1. If you’re the owner, get real. Ask yourself, how long do I want to continue to run our business? What if something happens to me that takes me out of the business before I’m ready? Have I groomed a successor? Set a timetable for your exit strategy, preferably some years ahead, and start looking now for your family member successor.
2. Find out who’s interested. Someone from the younger generation — son, daughter, niece, nephew, grandchild, etc. — may have expressed interest in taking over from you, but you need a commitment. If you have more than one child, especially more than one who has worked in the business, have a frank discussion with all of them present about your wish to ease yourself out of the business.
Ask them who is willing to step up to the plate. Marilyn Murdoch’s two adult children discussed their roles; Peter decided he wanted to run the show, while daughter Sally opted to run her own PR shop with the business as a client.
3. Use your judgment. No one knows their kids like a parent. Ask yourself if any of the family members who have expressed interest in succeeding you truly have what it takes to be a small business owner. Consider:
- Do they love the business?
- Do they love being the boss?
- Are they capable of, and willing to, work long hours if need be?
- Can they manage those critical relationships — customers, vendors, key employees — who make the business go?
- Is your successor’s immediate family supportive of the transition, which will require more time away from home and perhaps shifting responsibilities within the family?
4. Anoint your successor. Don’t waffle or agonize over your decision. You need to start teaching your successor what he or she will need to know (or they, if two people have agreed to share the job).
Make your choice clear to your key customers, vendors and employees, and start handing off those relationships. If you have employees who clearly don’t support the change, it may be time to find some new employees.
5. Take a long vacation and don’t call to check in. You have to start delegating ASAP or you’ll never give up control. Make a list of the things you do, then start moving some of them over to your successor. (Don’t just give them things you don’t like doing.)
After a year or two, take a nice, long, well-deserved vacation, and resist the urge to check in. If you’ve made the right choice, the business will still be there when you return.
6. Solicit input and implement as much as you can. Marilyn Murdoch says she knew her framing business needed to attract GenXers with money to prosper in the future, but she wasn’t sure how to do it. She asked Peter for a plan to do that, and has been working with him to implement the strategy. He feels much more invested in the company as a result.
7. Set aside financial resources specifically for the business. Marilyn has set up a trust designed to provide cash for the continuance of the business, so Peter has a cushion as he gets traction on the new job. The key is that she has essentially designated part of her inheritance for the business as opposed to leaving it for Peter’s personal disposal.
8. Slow, but steady wins the race. If you have planned properly, you can gradually scale back your role in the company as your successor(s) takes over. Marilyn says the most important element is the handing over of key relationships.
The shop has customers who have been with it for 25 years. While the upcoming generation will be important to the company’s growth, these long-term clients will continue to be its lifeblood. She turned those clients over to Peter early on, while still remaining available to them to ease the transition.
“The transition is going beautifully,” she says. “We’re not done yet, but so far, it’s working. And it’s especially powerful to be able to turn your business over to someone you love, respect and know so well.”
Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
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