10 Steps to a Successful Succession

Succession planning in a family business is crucial to ensure a smooth transition of leadership and ownership from one generation to the next.

Starting the process of succession planning early and developing a thoughtful plan can help address various challenges such as family dynamics, emotional attachments, retaining valuable employees, overcoming resistance to change, and financial and tax considerations.

A well-prepared succession plan paves the way for a successful transition, securing the future of the business and its legacy.

Here is the 10-step process that we use at the Alliance.

1. Initiate Discussions and Seek Out Advice

The first step is to open discussions. Keep the initial circle small. Your board, your executive team, your trusted advisors. Developing a broader communications plan comes later.

Succession can be a complex and sensitive undertaking with a lot of moving parts. Don’t be afraid to seek out qualified advice. Your banker, your attorney, and your CPA can provide some insight, but may not be the most knowledgeable in this area.

While you may go through a succession once or maybe twice in a lifetime, certified succession planners do this every day. (If you’d like to chat with us about this, we offer a free initial consultation: Book a Call)

2. Identify Goals and Objectives

What are the goals and objectives? These may include things like:

  • Maintaining family harmony: minimizing conflicts and maintaining positive relationships.
  • Preserving wealth: protect and enhance the family’s wealth and assets through the transition.
  • Ensuring competence and capability: making sure the successor has the necessary skills, knowledge, and experience to successfully lead the company.

3. Assess Readiness

Is the business ready for succession? Do you have a successor in mind? Are there multiple candidates? How ready are they to step into the role?

In many cases, the business may be ready, but the family members are not. Or vice versa.

A successful succession depends on both being ready.

4. Develop the Successor with a Training and Mentoring Program

Once you have a person (or multiple people) identified, build a training and mentoring program.

The more time you have, the better. With one of our larger clients, we worked on a succession plan for co-CEOs. The current CEOs were planning to retire in 5-year intervals.

There were six cousins who were all very well educated and qualified, but not quite ready for the CEO position. We developed a 7-year training and mentoring program to give them the experience they would need to successfully take the helm.

5. Consider External Candidates

Sometimes it’s helpful to bring in a non-family member as a bridge when the up-and-coming successor isn’t ready yet. If so, external candidates will play an important role in your succession planning.

For example, the large client I mentioned previously elected to bring in a non-family President to serve as a bridge until the next generation completed their training. This strategy, combined with the co-CEOs staggering their retirement, ensured that the transition went smoothly.

6. Establish a Stakeholder Communication and Involvement Plan

Getting the sequence of communication right is essential. When do you want to involve the family? When do you want to involve the management team?

Identify the stakeholders, then develop messaging and timing that is appropriate to each one.

7. Create a Governance Structure

What governance roles will you need? Do you need to establish a board of directors and/or a family counsel? Who do you need for outside advice and counsel? How will you conduct family meetings and board meetings?

We document this in something we call the Family Constitution.

8. Establish a Timeline with Milestones

Break down the long-term goals into smaller, manageable milestones.

Milestones act as checkpoints along the timeline, allowing progress to be tracked and adjustments to be made if necessary.

For example, milestones for successor training could include things like completing specific training programs, gaining leadership experience in different business functions, or achieving certain performance metrics.

9. Formalize the Transition

Identify and complete the documents you will need to formalize the transition. These typically include:

  • Shareholder Agreements
  • Wills
  • Estate Plans
  • Buy Sell Agreements
  • Employment Agreements

10. Implement and Adjust as Necessary

Once you have your plan fully laid out, the next step is to implement it.

Your succession plan may be 10 years long.

Be prepared to adjust as you go along. We don’t know what we don’t know – and situations will change over time.

The important thing isn’t the plan itself, it’s the clarity and alignment that comes from going through the process to develop the plan.

If you’d like some expert guidance developing a succession plan for your company, book a call with one of our advisors: Book a Call

Thinking About Selling Your Business?

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Whether you’re planning to retire and let the next generation take over - or you’re thinking about selling your business to a third party - the sooner you start planning for a successful exit, the better.

For a successful exit, you need to be able to say a hearty “Yes!” to these important questions:

  1. Are you financially ready personally to exit?
  2. Are you ready mentally or emotionally to exit?
  3. Is your business ready for sale or handover?
  4. If you’re selling - is the business attractive to potential buyers?

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