Ownership transition is the process of selling or transferring the legal ownership of a business from the current owner to the new owner(s). Business succession is the process of transferring leadership from the current CEO to a family member or key employee. Choosing the right successor is probably the most important decision for any internal transition since the company’s future viability and therefore the current owner’s future payments are dependent on the new leader. Let’s look at some of the most important things an owner will need to consider as they look to transition the business internally and begin grooming a successor.
Who Should You Choose?
When making the decision about who is going to take over, you must consider their capabilities, skills, and desire to become the new owner. The person you’ve chosen may have difficulty wrapping their brain around the prospect of taking over. It’s a lot to take in, and not everyone has the entrepreneurial spirit, the talent, or is in the right life situation to run a business. It’s important to pick someone who thinks like an entrepreneur and has the experience, and confidence to run the business.
Often, in family-held businesses, it is assumed that a family member should be the new CEO just because he or she is family, but a family member isn’t always an option or the best choice. You also can’t assume your key employee wants to take on the risk of owning and running the business. In the case of family members, adult children in the business often feel a sense of obligation to take over the business because they don’t want to disappoint people, but may not truly want to be the new owner. They may feel incapable or just don’t want to bear the burden of business ownership. It’s best to have open and candid conversations upfront and early – well before you plan to exit the business – to avoid any surprises.
Using Objective Criteria to Choose Your Successor
In order to select the correct successor, you must be objective in assessing the candidate’s abilities, attitude, aptitude, and willingness to take on the new role. Identifying the right person is a process that requires careful thought and planning. Here are some things that owners should do when considering their successors:
- Identify potential candidates
- Determine the interest level of those candidates you deem suitable
- Establish measurable criteria for assessing potential successors
- Evaluate the candidates to identify gaps in their skills and experience
- Create and implement leadership development plans for the top candidates
- Monitor the candidates’ progress on these plans
Identifying a successor’s strengths, weaknesses, and abilities is key. You want to make sure they are prepared to run the business to ensure continued success of the company.
The Importance of Succession and Leadership Training
The successor will need sufficient time and training to achieve success in the new role. The CEO role may require different skills and abilities than the person has been using in his or her current role. Don’t make the assumption that since the individual has been with the company for a long time he or she can just move into this role without proper training and assistance.
Transitioning the leadership of a business is an enormous event for an owner, his/her successor, and the business. Change is not easy, but planning can lessen the pain. In small and family businesses, succession planning may also involve a lot of emotional turmoil, and it may be helpful to turn to an outside, impartial group of advisors to help navigate the process.
Don’t underestimate the human element and how much time and effort will be required to make this happen. Developing ownership transition and succession plans are key elements of successful internal transitions; they will not only provide you with the roadmap you need to achieve your own goals, but will provide a concrete plan for business continuity with the next generation of company leaders.