Experience, some would say, comes with age yet business succession is also inevitable with age. What happens then when the next generation has to take over the family business?
COVID-19 is an era of unprecedented global calamity. Most business leaders of today might not have ever experienced a catastrophe of this magnitude in their careers. However, both private and public companies alike have leaders who are trained for the digital age of fast-paced technology, Cloud-based transactions and control, and other innovations that are deemed fast-emerging necessities in today’s business and economic setting. The younger generation of CEOs and leaders are more aware now of the need for environmental sustainability and technological advancement that is ever-growing rampant in today’s industries.
See this article on Sustainable Development in the Era of Advanced Technology
How is the transition taking effect in the business scene today? What are the things to prepare for when handing over your business to the next generation? Read below to find out!
Preparing for business succession
Business succession to the younger generation especially among private companies is shaping up to be more serious than ever in light of the COVID-19 pandemic. Older adults’ age groups have been fatally affected by the globally spreading disease. This means that they are more susceptible to the virus and require intensive care when infected. Thus, business succession is more likely to take place if they do not survive. How can the younger generation prepare for this transition?
Legalities
Legitimate affairs need to go through the proper channels, including business succession. Be it transfer of shares, buying and selling of ownership, agreement settlements with managers, employees, investors, and the children or successors. The new generation needs to take part in signing documents for these transactions. At the same time, they must go through the process to learn how these legalities are being carried out.
Mentoring
Part of succession planning is teaching the next generation how to lead. Books and second-hand information can only do so much. Mentoring best achieves its purpose when done properly. It means that successors must have hands-on experience by being part of the management team. Through this, they can better understand the company’s vision, goals, and family values that are directly passed on to them.
Separate entity concept
Current owners must make clear to the successors that personal and business expenses must always remain separate. This concept of separating the money of the company from that of the owners may be very basic. Nevertheless, it is one of the most abused or “forgotten” practices. Especially for smaller businesses, owners would simply take cash from the register just for the rationale that it’s theirs anyway and this might be true. However, to ensure that a business can sufficiently run without incurring a loss, a business must stand independently from the owners. Owners may take dividends, honoraria, salaries, etc. but an enterprise’s money must remain intact for other expenses. Examples of which include future expansion, employees’ salaries, and vendors’ bills.
New skills
Higher education and experience outside of the family business is beneficial to the personal growth of future successors and of the family business. New skills acquired from there may be brought back to be applied to the business. New operating practices, financial controls, and other skill sets from other businesses may improve the overall standing of the company among its competitors.
Interest in taking over
Planning for the next generation to take over is an opportunity for the current owners to set a blueprint of how they want the family business to look like after they relinquish control. Professional financial advisors can help you shape your plans into reality. However, the next generation must also play their respective parts. Having an interest in handling the business is a key part of this transition.
Predecessors cannot always rely on forcing things on the next generation and implement the transition “whether they want to or not”. It is worth noting that once you’re no longer at the helm, successors may do almost whatever they want with the business, and that may include relinquishing control to others who are more interested. Interested intended successors will take the company to the next level and aim for the same goals and more. Having this ideal scenario is definitely worth preparing for.
Up-to-date technology
Competitors can easily overtake a company if technological adaptation is not among your strongest suit. This advancement impacts every business. Therefore, it is crucial to one’s success especially these days when we use technology almost as a crutch to bridge the gap that social distancing requires us. The new generation’s general adaptability to these current technologies is very admirable but it will be best put to use when funds are available for them to use, after the transition. A stable cash flow and a strong cash position are indeed helpful for the new generation upon their take over.
Key employee discontent
In an ideal world, once your successors come to take over, everyone will be happy. But given that some employees who will have had more experience than the younger generation, it might not make them happy to be subordinate to someone younger and with less experience. Key employees must be retained and kept dedicated to enable a smooth transition. It can be as inventive as new salary packages and bonuses or by simply supporting them better in their endeavors and letting them know that their best interest is still at heart, despite the transition in the company.
Conclusion
Passing on the reigns to your successors is both a professional and personal affair. It affects your employees and customers, as well as your relationship with your heirs. The proper turn-over procedures are important to be observed to have a smooth transition. No matter what preparations you make, ensure that everybody’s interests are considered. Not everyone might feel happy about certain aspects, but being able to deliver good outcomes that benefit everyone will be key.
Contact us
Consult with professional business consultants to ensure a smooth transition during your business succession. S.J. Grand also offers due diligence and other financial advisory services to help you. Contact us to make an appointment.
Also, check out our latest Cloud-based company solution and go to our Kwikdroid page to check the prices and packages we offer, no matter the size or type of company.
