A 52-year-old businessman has sole ownership of a business and his wife takes care of their home. They have three children, ages pre-teen through early college. One or two of the kids have voiced an interest in working in the business, but the businessman realizes his children won’t be ready to take his place, even the oldest, as talented as she is, for a while.
So, what does he do over the next 10 or 15 years? Does he need to stay until they are ready to take over? What if something takes him out of work for a year, such as an illness or injury?
“Having a long-term plan is always important, but you’ve got to think of the contingency. What if something unexpected happens?” says Ricci M. Victorio, CSP, CPCC, ACC, managing partner at Mosaic Family Business Center. “And if you don’t want to close the doors, then you have to start thinking: ‘What’s my backup plan?’”
Smart Business spoke with Victorio about creating a leadership team to bridge the gap between your leadership and when your successor can start running the company.
What’s the first step to creating a backup succession plan?
First, establish a path for your children so they know what’s expected of them — if, of course, they are even interested in joining the company. What kind of education and experience do they need to be a qualified applicant?
If you have more than one child interested in working for the company, you’d be wise to understand how they can best contribute without stepping on each other’s toes. Don’t set them up to compete with each other. Let them know that there are no elevators to the top. Once they come to work, it is important to you that they learn the business from the ground up, earning their promotions and respect of their co-workers.
Then, if there is a gap, you need to think about how to protect your company.
How can you ensure the company stays successful, no matter the situation?
Generally, small businesses are run in a hub and spoke management style. Lots of people have responsibilities, but the business owner makes the decisions.
Some of these owners are partners with a family member, which can provide a built-in succession fail-safe. However, many may need to establish a leadership team comprising trusted key managers capable of running the business in their absence to bridge the succession gap.
Rather than relying on one person who could, despite all good intentions, fail miserably or leave for a better offer, a management advisory team with executives and managers from various departments is the perfect leadership contingency platform. Then, if you go down, for whatever reason, you have people who can run your business as if you were there. And this leadership team can mentor your children when, or if, they join the business.
In order to get them to think beyond their regular management duties, incentivize them for stepping into a leadership role. For example, put a percentage of profits into a deferred compensation retirement plan. If you make it a 15-year vested policy, it ensures they stay interested in the company’s performance long term.
The team will need to meet on a regular basis to learn how to work together, share resources and be able to have a round-table discussion where everybody isn’t looking at the boss like a deer in the headlights. It’s like bringing an MBA training program to your conference room, tailored to fit your business and group.
You will also need to create a charter agreement that identifies your vision for the advisory board, along with specific objectives, expectations, benchmarks and incentives. Create a five- to 10-year strategic plan that will guide the team in decision-making. Begin transferring authority to make decisions as you become comfortable with this team.
Over a period of time, usually three to five years, there will be a gradual transition as trust develops between the owner and managers. Managers will respond to your trust and feel respected as they step up in responsibility to make operational decisions. You will have passed on the core values and decision-making criteria that made your business so successful in the first place to a team of people who can protect your legacy to survive and thrive into the next generation. ●
Ricci M. Victorio, CSP, CPCC, ACC, is managing partner at Mosaic Family Business Center. Reach her at (415) 788-1952 or [email protected].
Insights Wealth Management & Finance is brought to you by Mosaic Financial Partners Inc.
