What will happen to your company when you retire?
As baby boomers prepare to step away from their careers, those who own small businesses have much to consider about the future of their company. For many owners, that critical consideration period comes too late—and as a result, the transition period is messy, and the success of the company is compromised.
Want to prevent a messy transition? Then start thinking about how you will exit your company now. Here are five things you can do to prepare for both your retirement and your business succession plan.
1. Think about who will run the business.
The most important thing you can do now is consider who will be in charge once you retire. Chances are, you’ve already got a good idea who you want to pass the business on to, but if not, consider your options:
- Family. Do you have a relative or multiple relatives who want the company and are prepared for the responsibility?
- Current Employees. Perhaps you have an employee in mind who is interested (or might be interested) in taking over the business.
- Buyer. If you don’t have family or current employees that are interested, another option is to sell the business.
The Family Business Institute has several interesting resources that can help you demystify the process of passing on the leadership of your company. I specifically recommend their article, What Factors Can Screw Up Your Family Business Succession Planning?.
2. Create a framework for transitioning the business to new leadership.
Start brainstorming the important factors in your succession plan transition with the five W’s: who, what, when, where, and why. Make succession planning a consistent part of your activities so you don’t go too long without considering and addressing any important issues, which may force you to make a hasty decision down the road.
3. Share the plan.
According to one report, 62% of employees surveyed said they would be “significantly more engaged” at work if their company had a succession plan. That means if you don’t have a succession plan, you need to start thinking about one, and if you do have a succession plan, you need to be open about sharing the plan with your entire organization.
This Society of Human Resource Management article brings up some good points about whether or not you should tell employees they are part of a succession plan. I lean toward the “yes” side, but both sides are interesting.
4. Put a plan in place to grow your future leaders now.
One of the most important things you can be doing before you transition out of your business is to empower and grow your leaders now. That way, you can offer mentoring, advice, and hands-on training before you’re removed from the picture.
This Bloomberg article highlights the success of planning ahead:
“When BAE learns that an employee with deep institutional knowledge plans to retire, whether in a few months or a couple of years, a knowledge-transfer group of about a half-dozen people of varying ages working in the same area is formed. The teams meet regularly over months to talk and exchange advice. Younger workers elicit tips, and in some cases older ones gradually hand off tasks to junior employees.
BAE has quantified the payoff of its knowledge-transfer efforts by looking at variables such as direct and indirect costs and productivity. “We’re saving on average between $120,000 to $180,000” per project, Muras says. Devoting more time preparing millennials for leadership roles may also encourage them to stay with the company.”
5. Have an emergency plan.
This Open Forum article shares some excellent advice:
“Lay out a step-by-step, disciplined approach to agreeing to and training successors quickly and efficiently should an immediate need arise. While a non-existent transition period is not ideal, sometimes things happen. You want to be prepared and able to proceed without too much disruption to the business.”
A “plan B” is always a good idea in case of the unexpected—and in the case of your small business, a written plan will help ensure a smoother transition amidst confusion.
Prepare Now For An Easier Transition Later
By creating a thoughtful, deliberate framework for your succession plan now, you’ll help ensure your final years in charge of your small business are fruitful and less tumultuous. Furthermore, you’ll have the peace of mind of knowing that when you’re ready to pass the baton, the change will be less likely to affect the long-term health of your organization.