Transition Your Business

Selecting a Successor: 7 Steps to Success

Selecting a Successor: 7 Steps to Success
 

Family businesses make up 50 percent of the United States’ gross domestic product and generate about 60 percent of employment, according to a recent article in Forbes. Yet only about one-third of all family-owned businesses successfully transition to the second generation.

“The most important thing to understand is that succession planning is not an event. It’s a journey that takes several years,” says Kelly LeCouvie, a consultant with the Family Business Consulting Group Inc., based in Toronto.

According to LeCouvie, there are seven key steps to successful succession planning:

1. Build your journey’s road map

Family and key management should plan together, beginning at least five to seven years before you want to retire, LeCouvie says. This is when the company identifies what the business’s key strategic challenges are today and what they are likely to be in the future.

Consider those future challenges when choosing a successor, and identify what the optimal leader of the future business looks like. “The founder should not be searching for a mini me,” LeCouvie says.

2. Assess the next generation

The future leader may not look like any of your children. “If your eldest child is 22, he or she is probably not ready to run the business,” LeCouvie says. You may need an interim leader until the second generation is prepared.

Create specific development plans to prepare the next generation for leadership, including identifying mentors or classes and conferences focusing on family business management.

3. Create transparency

The greatest indicator of successful transition is communication. “There must be no surprises,” LeCouvie says.

Small family businesses might choose to meet as a family quarterly, while larger families may logistically be able to meet only once or twice a year. In these meetings, LeCouvie says, “Discuss important matters related to the business and the family, for example, business strategy, how key management is doing and what the next generation might need in terms of development.”

4. Determine what you need

Founders need to come up with a clear plan for what they’ll take with them and what they’ll leave behind.

This should include a cash-flow plan that helps ensure personal financial security as the business continues, as well as an outline of what decision-making roles the founders will keep, what they’ll delegate and what they won’t meddle in—with a very specific timeline.

LeCouvie also recommends defining what the company’s success looks like. “Identify key milestones and what to do if those milestones aren’t reached. Will you step back in?”

5. Get a shareholders’ agreement

“If you give your company equally to your three children and one of them decides he wants his money and wants out of the business, that could devastate the company,” LeCouvie says.

A shareholders’ agreement established with your attorney specifies how a shareholder can exit. “For example, the person who wants out might be required to do so gradually,” LeCouvie says.

6. Make your own plans

“Many entrepreneurs don’t have any hobbies, so this transition can be really difficult,” LeCouvie says.

Ask yourself what you want your personal legacy to be, she says. “Do you want to give back to the community? Serve on other boards? Support other entrepreneurs? Answering such questions will help you move away successfully,” she says. 

7. Get advice

There are many diverse issues involved in succession planning. You may want to consult with professional business planning services to help ensure that you and your business are prepared for a successful future.

Planning ahead will not only make your transition out of the business easier, it will put the company you’ve worked so hard to create on track to a bright future with the next generation of your family at the helm.

This content does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

Related

Investment and Insurance Products:

Are Not FDIC or any other Government Agency Insured   Are Not Bank Guaranteed  May Lose Value 

© 2018 SunTrust Banks, Inc

equal housing logoSunTrust Bank is an Equal Housing Lender. Member FDIC

equal housing logoEqual Housing Lender. SunTrust Mortgage, Inc

SunTrust, SunTrust Mortgage, SunTrust PortfolioView, SunTrust Robinson Humphrey, SunTrust Premier Program, AMC Pinnacle, AMC Premier, Access 3, Signature Advantage Brokerage, Custom Choice Loan and SunTrust SummitView are federally registered service marks of SunTrust Banks, Inc. All other trademarks are the property of their respective owners.

Services provided by the following affiliates of SunTrust Banks, Inc.: Banking products and services are provided by SunTrust Bank, Member FDIC. Trust and investment management services are provided by SunTrust Bank, SunTrust Delaware Trust Company and SunTrust Banks Trust Company (Cayman) Limited. Securities, brokerage accounts and insurance (including annuities) are offered by SunTrust Investment Services, Inc., a SEC registered broker-dealer, member FINRA, SIPC, and a licensed insurance agency. Investment advisory services are offered by SunTrust Advisory Services, Inc., a SEC registered adviser. GFO Advisory Services, LLC is a SEC registered investment adviser that provides investment advisory services to a group of private investment funds and other non-investment advisory services to affiliates. Mortgage products and services are provided by SunTrust Mortgage, Inc.

SunTrust Mortgage, Inc. - NMLS #2915, 901 Semmes Avenue, Richmond, VA 23224, 1-800-634-7928. CA: licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act, IL: Illinois Residential Mortgage Licensee #MB-989, Department of Financial and Professional Regulation, 100 W. Randolph, Suite 900, Chicago, IL 60601, 1-888-473-4858, MA: Mortgage Lender license #-ML-2915, NJ: Mortgage Banker License - New Jersey Department of Banking and Insurance, NY: Licensed Mortgage Banker—NYS Department of Financial Services, and RI: Rhode Island Licensed Lender.

"SunTrust Advisors" may be officers and/or associated persons of the following affiliates of SunTrust Banks, Inc.: SunTrust Bank, our commercial bank, which provides banking, trust and asset management services; SunTrust Investment Services, Inc., a registered broker-dealer, which is a member of FINRA and SIPC, and a licensed insurance agency, and which provides securities, annuities and life insurance products; SunTrust Advisory Services, Inc., a SEC registered investment adviser which provides Investment Advisory services.

SunTrust Private Wealth Management, International Wealth Management, Business Owner Specialty Group, Sports and Entertainment Group, and Legal and Medical Specialty Groups and GenSpring are marketing names used by SunTrust Bank, SunTrust Banks Trust Company (Cayman) Limited, SunTrust Delaware Trust Company, SunTrust Investment Services, Inc., and SunTrust Advisory Services, Inc.

SunTrust Bank and its affiliates do not accept fiduciary responsibility for all banking and investment account types offered. Please consult with your SunTrust representative to determine whether SunTrust and its affiliates have agreed to accept fiduciary responsibility for your account(s) and if you have completed the documentation necessary to establish a fiduciary relationship with SunTrust Bank or an affiliate. Additional information regarding account types and important disclosures may be found at www.suntrust.com/investmentinfo.

SunTrust Robinson Humphrey is the trade name for the corporate and investment banking services of SunTrust Banks, Inc. and its subsidiaries, including SunTrust Robinson Humphrey, Inc., member FINRA and SIPC.