Many entrepreneurs who start and grow a business hope that someday their family--specifically their children--will take over running the company. Even better, the business would pass from generation to generation into the future.
That's a legacy that appeals to many of us.
But making the transition from the first generation--G1--to the next--G2--can be trickier than it seems.
Fortunately, there's a couple of tips to consider if you find yourself contemplating a generational shift in your business.
1. Is anyone interested?
The first question you have to ask yourself is if any of your children are actually interested in learning about and running the business. I knew a woman, for example, who had gone to a prestigious university based on her skill as a classical pianist. But her father owned a gritty manufacturing company and he forced her to give up her dream of playing the piano to come run the family business. As you could imagine, this woman was never really happy in that role--and it showed.
So rather than force your kids to do anything they might not want, understand what their dreams might be before you go about your succession planning.
2. Get them prepared.
If you do have a son or daughter interested in the business, steer them toward an education suitable to the task. If you have a manufacturing company, maybe they could study engineering. If you sell financial services, maybe they could get an MBA. The idea would be to give them an education that would make them credible in running the business.
The catch is that when they finish their studies, they should get a job--at a different company or companies. And they should work outside the family business for between five and 10 years--ideally in a similar industry--as a way to learn the ropes.
The mistake I see so many family businesses make is bringing in G2 members and immediately promoting them to leadership positions. This sends the wrong message to the rest of your employees and undercuts your child's credibility with the rest of the company. Everyone knows they only got the title because of their last name.
Ideally, you would hire back your son or daughter after they have worked outside the business and then give them the chance to earn their way up the ladder.
I worked with one client, for instance, who hired his son as a salesperson after a number of years in other firms. And it was only after a few years of stellar performance that he promoted his son to a senior sales position--which wasn't question by anyone because he had earned it due to his performance.
3. Establish clear swim lanes.
If you have multiple children interested in working in the business, you should give each of them their own domain they can run and be responsible for.
The family that runs Fess Parker wines is a great example. Fess was the actor that played Daniel Boone on TV and was a very popular actor in his day. He retired to Santa Barbara and established a winery and proceeded to make some quality wines. As he aged, he wanted to bring his family into the business. Luckily, the business had expanded to include hotels, a fine restaurant and the winery. Each of the children (and some spouses) had different talents and they took on leadership of the various businesses as well as overall marketing and branding for the business.
This gives them all the opportunity to collaborate and work together without getting into each other's way. They all get along reasonably well and have been able to resolve conflicts between the business as well - not all families have this collegial relationship.
4. Don't exit too soon.
When the time comes for you to hand over the keys of the business to your successor, and that successor is your child, there are a couple of things to keep in mind.
The first is that if you have had any other longtime executives serving under you that may have hoped for the chance to run the company themselves, you might lose them if you choose your child as a successor instead. Just know that will be the case.
But you should also plan to stick around for a while when you do hand over the business to G2. Don't plan to head to an island and drink margaritas all day because they are going to need your advice and counsel, at least for a while. The wisdom and experience you accumulated over the years in building up the business are invaluable to G2, so make yourself available to them when they need or ask for your help. One of our clients had his dad on the payroll for many years after the transition as an advisor - this gave him sage wisdom, quality time with his father and a little extra income for Dad.
5. Get outside help.
If there is any question about succession in the business--particularly among several family members who might be vying for the job--it could often be wise to bring in outside experts skilled in helping family businesses work through issues like these. The last thing you want to do is put your family ties at risk over questions about splitting things up equitably.
Of course, you could also consider just selling the business, because splitting up cash is always easy to do.
But if you do want to keep the business in the family over the long haul keep these five tips in mind ahead of time to help make ensure a smooth transition to the next generation and beyond.