Boettner: Getting business ready for the next generation

Cathy Boettner
Cathy Boettner

When you sell your business, you want to maximize value. When you transition it to a new generation of family members, you want your children or your grandchildren to be successful.

In working with family businesses, and having been a part of one myself, I often see two challenges for owners when it comes to preparing for that transfer, especially for owners who began the company and built it from the ground up.

First is the acknowledgement that he or she needs to do something. It's like people knowing they have to do a will and trust, but don't because it's a difficult acknowledgment that you have more years behind you than in front. That's a hard place to be.

The second is that for a lot of business owners, their whole persona is the business. They run the ship, make the decisions. Who will they be, what will the company be, when they are not there anymore?

I encourage family business owners to think of the transition as a dial, not as a switch - one day you are working, the next day you are retired.

How can we build and structure the organization to support your level of interest, the responsibilities you want to hold onto, where you drive the most value, as you prepare for a lesser role and eventually to leave it?

This paradigm shift in viewing a transition can be of great value to both the owner and any children inheriting the business, as well as to the business itself and employees. It gives an owner an opportunity to take an heir-apparent son or daughter to a new level, rather than just switch positions.

Once an owner defines the lesser role they want, then you look at the organization and the capabilities within it. Does the business have the ability to handle everything the owner had been doing? Or the ability to have it handled somewhere else?

If you want your son or daughter to take your role, you have to look at your own job description and assess your child's capabilities. Define the gaps and start them on a development plan.

Getting that child on a development plan sooner rather than later is important. You don't want to wait until you are a year away from the transition to start teaching them about financials, budgeting, insurance and bank relationships -- things they are going to have to know as CEO. Those are all difficult to learn in a short period of time.

An immediate ascendancy into a president's role without preparation also can be challenging for the child. And don't forget the people in the organization. Moving a child through the organization in a methodical way is a much better way for him or her to learn the organization from the inside out, and earn the respect and trust of your valued employees.

Our recommendation is that you give yourself three to five years at a minimum. The more time you give an organization to absorb the change, the more you can communicate. And people do much better when they know what's coming.

Not all family businesses will transfer to a single child. Some owners might want to transfer a company to multiple children. This can work with proper forethought, but it also can create a dysfunctional situation if you don't fully think through potential problems and create avenues to resolve them, such as buyout agreements. Business owners might consider alternate ways to be fair in passing along wealth, such as giving children other assets more in line with what they want to do.

Sometimes, the best option for a new generation of family members might be to retain ownership, but hire professional management to run the business. In this scenario, a governance structure must be set up to guide how decisions will be made and define the family's involvement.

How to transition a business to a new generation will vary with the situation, the talents and desires of every family. But communication between family members, a well-ordered planning process and strategy will lay a strong foundation.

Cathy Boettner is a management consultant with LBMC Planning Services in Chattanooga, specializing in strategic planning, transition planning, executive coaching and family businesses. She was owner, president and general manager of Cleveland Tubing Inc. for 18 years. She can be reached at cboettner@lbmc.com.

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