Teaching Your Kids to Take Over the Family Business: When You Have More Than One Child
"Succession is really three different things: leadership, governance and ownership," Shefsky says, and when you have more than one child ready to take on the business, it's especially important that you recognize the differences.
"You may have a son who should only be a shareholder, a daughter who would be great on the board of directors and another son or daughter who would be the ideal CEO," Shefsky explains. By employing this strategy, you may be able to give all your kids a stake in the business without forcing them to compete for a single position.
Both Shefsky and Green agree that giving your successors equal ownership is a trap that many family businesses fall into. "Parents are always trying to equalize, and one of the things we know is equal's not fair," Green says.
To determine who ultimately gets to take your position as president or CEO, ask yourself which of your children has demonstrated the best leadership skills? Who has the most defined vision of the company's future? Who has the drive to employ that vision? And who does your staff look up to?
There's no doubt it may be a difficult decision, but Cynthia says, "Eventually, what's best for the business will be best for the family."
Dig Deeper: Choosing a Successor
Teaching Your Kids to Take Over the Family Business: What to Watch Out For
It's unlikely you'll get away with hiring your son or daughter (especially in a managerial position) without breeding some resentment among your employees. The only solution to this problem, Shefsky says, is to be honest about your plans as early as possible.
"[Some employees] may have expectations of taking over when you retire, and that may not be consistent with what you and your family want," he says. "Tell them as far in advance as is reasonable."
This is when appointing a mentor may also be helpful. If an employee introduces your kid to the rest of the staff, it is often less controversial than if you were to introduce the kid yourself. In some cases, you may ask that mentor to take your place for a while, as your son or daughter continues to train and the staff becomes comfortable with his or her capabilities.
"You don't want anyone to be shocked or threatened [by the transition]," Shefsky says. "You want to do it in a smooth way."
You may also want to form a board of directors, if you don't have one already, that will oversee the continuity of the business.
Mapping all these steps out in a formal succession plan is the smartest way to ensure your transition goes as you intend it to go. Though both Green and Shefsky suggest consulting an accountant, attorney or financial planner, these are some key details you'll want to include:
- Identify your successors.
- Set an employment policy with rules on employment eligibility.
- Detail the qualifications for potential ownership.
- Come up with a contingency plan should anything happen to the intended successors.
- Include a leasing agreement on the company real estate.
- Make sure you compare this succession plan with your estate plan to ensure all your assets aren't wrapped up in your business.
- Decide when you will step down and what your involvement with the company will be after that time.
- Include plans for the inevitable involvement of spouses.
- Write up an agreed upon vision of the company's core values.
Unfortunately, Green says, when you're creating this plan, "you have to think of some of the worst case scenarios, because there are too many families that have been blown apart because people didn't deal with those situations."
Dig Deeper: How to Create an Estate Plan
Teaching Your Kids to Take Over the Family Business: Moving on
The hardest part of the entire process may be taking that final step in passing the torch. Even if your son or daughter is ready to take over, you need to make sure you're ready to step back. "I've seen more mistakes in early retirement than you can imagine," Shefsky says.
Ask yourself if you'll be able to accept that things may not always operate exactly as you planned. If so, you have to commit yourself to that mindset as thoroughly as you committed to your business.
"My father's now chairman of the board, but he allows me to run the company," Cynthia says. "He talks to me [about the business] and then says, ‘But you need to do what you think is best,' and that's exactly how we did it."
Dig Deeper: The Retirement Myth
Teaching Your Kids to Take Over the Family Business: Additional Resources
The Family Business Network: Find international events and courses as well as training opportunities for you and your family.
Family Business Magazine: Get tips on how to make a family business work from other successful families.
Counselors to America's Small Business: Learn how to draft a succession plan.
