What to consider in choosing a successor for your business

Studies show that only 30% of family businesses survive the transition from the founder’s generation to the next generation. Of the companies that weather such transitions, less than half successfully transfer the business to a third generation. Such statistics demonstrate the importance of succession planning, a task that can be especially difficult for small businesses. Ownership and management of such firms are often vested in the same person or small family group, so identifying and grooming those who will lead the company forward is critical and fraught with risk.

What factors should a business owner consider when evaluating potential successors?

First, you’ll want to know whether the candidate shares your values and vision for the firm. Perhaps you’ve built a reputation for strong customer service and paying bills on time. If your successor lacks that same commitment, your customer base may crumble. Vendors who for years have trusted your company may become less responsive to the company’s needs. Also, any potential successor should exhibit certain minimum technical competencies. He or she may not be expert in every aspect of the business, but any candidate should have a basic understanding of your critical operations, accounting systems, and products.

A family member who’s grown up with the business and has a strong interest in its future profitability may be a great successor. But just because your son shares a bloodline or name, don’t assume that he has the skills, temperament and motivation to nurture your company. Many firms crash and burn when junior takes over the helm.

In many cases, a family member — although the best choice for the long term — must “pay her dues.” That may mean spending time at another company, obtaining formal education in business or accounting, working her way up from the warehouse to the sales department to the executive offices. If possible, potential successors also should work alongside existing management for a transition period before assuming full management responsibility.

Remember as well that your successor will not operate in a vacuum. To make the transition as smooth as possible, your choice of a successor should be clearly communicated to employees, well in advance of the full transition. In a best case scenario, handing over the reins of your company should be a gradual and natural process — for employees, customers, suppliers, and anyone directly involved with your business.

If you need help with this important decision, give us a call. 970-207-9724