For many business owners, choosing a successor is the most challenging task related to succession planning. Owners of family-owned businesses, who may have multiple children or other relatives to consider, particularly tend to struggle with this tough choice.
What’s worse, many business owners’ initial picks for successors don’t work out. Over time, the chosen person can prove to be unqualified, incapable, or unwilling to fulfill a leadership role. If you find yourself in this situation, don’t panic. There are some measured steps you can take to resolve the matter.
Ask Around
Before you dismiss your chosen successor, discuss the situation with several objective parties. These might include professional advisors, such as your CPA and attorney, as well as trusted family members, friends, or colleagues with business experience.
Your goal is to determine whether your perception is off the mark. You may think, for instance, that your successor lacks the necessary skills to run your company. However, the person might have a different leadership style than you do. Talking with others may help you put things in perspective.
Look for Ways to Help
If you come to believe that, with some work, your successor may still be capable of running the business after all, meet with the person. State your concerns and outline what must change.
And don’t forget to listen. Ask why your successor is having the difficulties you’ve pointed out. Perhaps it’s a lack of formal training in one aspect of the job. In such cases, there may be a class that can help provide the needed education, or maybe more mentoring from you might solve the problem.
It’s also possible your successor is facing personal issues that are getting in the way of work. For example, the person may be having financial problems, battling an addiction, or struggling in a marriage or other personal relationship. By listening, you can find out the specific issues and how you may be able to help.
Avoid Past Mistakes
After talking with others and perhaps your successor, you may still feel the person needs to be replaced. If you decide to move on to someone else, tell your successor as soon as possible and explain why. Being honest and forthright, though difficult, will help settle the matter efficiently. As part of the conversation, ask whether there’s anything you could’ve done differently to avoid the impasse that developed.
Following that discussion, reconstruct the succession planning process to determine what led you to choose your initial successor. Review personal notes, memos, and emails. Speak again with your professional advisors and trusted employees, family members, friends, and colleagues about picking someone new. Ultimately, you want to develop objective criteria for your new successor and eliminate the impediments that kept your initial choice from working out.
Finally, if your second choice also doesn’t work out, stay open to the possibility that the problem may not lie with your prospective successors. It’s possible that the demands you’re placing on a successor may be somewhat unreasonable or that you’re inadequately communicating your wishes and expectations.
Prepare for Contingencies
Many business owners choose successors, work diligently to mentor them, and transition smoothly into retirement with their companies in safe hands. But, as you well know, rarely does everything go exactly as planned in the business world. Preparing for contingencies is key in succession planning. As part of that effort, we can help you integrate savvy tax and financial strategies into your plan.